TIDMDNA
RNS Number : 3184H
Doric Nimrod Air One Limited
02 August 2021
DORIC NIMROD AIR ONE LIMITED
(Legal Entity Identifier: 2138009FPM7EH4WDS168)
ANNUAL FINANCIAL REPORT
The Board of the Company is pleased to announce its results for
the year ended 31 March 2021.
To view the Company's Annual Financial Report please follow the
link below:
http://www.rns-pdf.londonstockexchange.com/rns/3184H_1-2021-8-2.pdf
In addition, to comply with DGTR 4.1 please find below the full
text of the annual financial report. The report will also shortly
be available on the Company's website, https://www.dnairone.com
.
ANNUAL GENERAL MEETING
Notice of the Annual General Meeting of the shareholders of the
Company (the "AGM") will be published in due course.
For further information, please contact:
For administrative and Company information:
JTC Fund Solutions (Guernsey) Limited
+44 (0) 1481 702400
For shareholder information:
Nimrod Capital LLP
+44 (0) 20 7382 4565
OF ANNOUNCEMENT
E&OE - in transmission
Doric Nimrod Air One Limited
Annual Financial Report
From 1 April 2020 to
31 March 2021
DEFINITIONS
"Administrative Subordinated administrative shares
Shares"
"AED" United Arab Emirates dirham
"AGM" Annual general meeting
"Amedeo" or Amedeo Management Limited
the Liaison
Agent
"AR Committee" Audit and Risk Committee
"Articles" Company's Articles of Incorporation
"ASKs" Available seat kilometres
"Asset" or Airbus A380-861 Aircraft, manufacturer's serial
the "Aircraft" number 016
"ATAG"
Air Transport Action Group
"BA" British Airways
"Board" Company's Board of directors
"CDS's" Credit Default Swaps
"Chair" Chair of the Board
"Code" The UK Corporate Governance Code
"CORSIA" Carbon Offsetting and Reduction Scheme for
International Aviation
"Deloitte" Deloitte LLP
"DGTRs" Disclosure Guidance and Transparency Rules
"DNA" or the Doric Nimrod Air One Limited
"Company"
"Doric" or Doric GmbH
the "Asset
Manager"
"Doric LLP" Doric Partners LLP
"DWC" Dubai World Central International Airport
"Emirates" Emirates Airlines
or the "Lessee"
"EPS or LPS" Earnings / loss per share
"ESG" Environmental, Social and Governance
"EU" European Union
"EU ETS" European Union Emission Trading Scheme
"FCA" Financial Conduct Authority
"FRC" Financial Reporting Council
"FVOCI" Fair value through other comprehensive income
"FVTPL" Fair value through profit or loss
"GBP", "GBP" Pound Sterling
or "Sterling"
"GFSC" Guernsey Financial Services Commission
"GHG" Greenhouse gas
"IAS 1" International Accounting Standard 1 - Presentation
of financial statements
"IAS 8" International Accounting Standard 8 - Accounting
policies
"IAS 16" International Accounting Standard 16 - Property,
Plant and Equipment
"IAS 36" International Accounting Standard 36 - Impairment
of Assets
"IASB" International Accounting Standards Board
"IATA" International Air Transport Association
"ICAO" International Civil Aviation Organization
"IFRIC" International Financial Reporting Interpretations
Committee
"IFRS" International Financial Reporting Standards
"IFRS 16 " IFRS 16 - Leases
"IPCC" Intergovernmental Panel on Climate Change
"IPO" Initial Purchase Offering
"ISAE 3402" International Standard on Assurance Engagement
3402
"ISTAT" International Society of Transport Aircraft
Trading
"JTC" or "Secretary" JTC Fund Solutions (Guernsey) Limited
or "Administrator"
"Law" The Companies (Guernsey) Law, 2008, as amended
"Lease(s)" Lease of Aircraft to Emirates
"Loan(s)" Borrowings obtained by the Company to part-finance
the acquisition of Aircraft
"LSE" London Stock Exchange
"NBV" Net book value
"Nimrod" or Nimrod Capital LLP
"Corporate
and Shareholder
Adviser"
"Pandemic" COVID-19 pandemic
"Period" 1 April 2020 until 31 March 2021
"PIES" Public Interest Entities
"PLF" Passenger load factor
"Registrar" JTC Registrars Limited
"RPKs" Revenue passenger kilometres
"SAF" Sustainable Aviation Fuel
"SDG" Sustainable Development Goals
"SFS" Specialist Fund Segment of the London Stock
Exchange's Main Market
"Shareholders" Shareholders of the Company
"Shares" Ordinary Preference Shares of the Company
"Share Capital" Share capital of the Company
"SID" Senior Independent Director
"TAP" TAP Air Portugal
"UAE" United Arab Emirates
"UK" United Kingdom
"USD", or United States Dollar
"$"
"VIU" Value-in-use
"WACC" Weighted average costs of capital
"Westpac" Westpac Banking Corporation
SUMMARY INFORMATION
Listing Specialist Fund Segment of the London
Stock Exchange's Main Market
Ticker DNA
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Share Price 33.00 pence (as at 31 March 2021)
33.00 pence (as at 30 July 2021)
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Market Capitalisation GBP 14.008 million (as at 30 July 2021)
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Current / Future Anticipated Current dividends are 2.25 pence per
Dividend quarter per share (9 pence per annum)
and it is anticipated that this will
continue until the aircraft lease terminates
in 2022
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Dividend Payment Dates April, July, October, January
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Currency Sterling
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Launch Date / Share Price 13 December 2010 / 100 pence
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Incorporation and Domicile Guernsey
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Aircraft Registration A6 - EDC (16 December 2022)
Number (Lease Expiry Date)
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Asset Manager Doric GmbH
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Corporate and Shareholder Nimrod Capital LLP
Adviser
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Administrator JTC Fund Solutions (Guernsey) Limited
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Auditor Deloitte LLP
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Market Makers finnCap Ltd
Investec Bank
Jefferies International Ltd
Numis Securities Ltd
Shore Capital Limited
Winterflood Securities Ltd
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SEDOL, ISIN, LEI B4MF389, GG00B4MF3899, 2138009FPM7EH4WDS168
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Year End 31 March
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Stocks & Shares ISA Eligible
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Website www.dnairone.com
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COMPANY OVERVIEW
DNA is a Guernsey company incorporated on 8 October 2010. Its
Shares were admitted to trading on the SFS on 13 December 2010.
The Company's total issued Share Capital currently consists of
42,450,000 Shares which were admitted to trading at an issue price
of 100 pence per Share. As at 30 July 2021 , the latest practicable
date prior to publication of this report, these Shares were trading
at 33.00 pence per Share.
Investment Objectives and Policy
The Company's investment objective is to obtain income returns
and a capital return for its Shareholders by acquiring, leasing and
then selling a single aircraft. The Company purchased one Aircraft
in December 2010 for USD179 million, which it leased for twelve
years to Emirates, the national carrier owned by The Investment
Corporation of Dubai based in Dubai, UAE.
The operating Lease is for an Airbus A380 aircraft. The term of
the Lease is for 12 years ending December 2022 with reduced rental
payments in the last two years and no extension option.
Emirates bears all costs (including maintenance, repair and
insurance) relating to the Aircraft during the lifetime of the
Lease.
Distribution Policy
The Company currently targets a distribution of 2.25 pence per
Share per quarter.
There can be no guarantee that dividends will be paid to
Shareholders and, if dividends are paid, as to the timing and
amount of any such dividend. There can also be no guarantee that
the Company will, at all times, satisfy the solvency test required
to be satisfied pursuant to section 304 of the Law, enabling the
directors to effect the payment of dividends.
Performance Overview
All payments by Emirates have, to date, been made in accordance
with the terms of the Lease.
During the financial year under review, and in accordance with
the Distribution Policy, the Company declared four interim
dividends of 2.25 pence per Share. Two interim dividends of 2.25
pence per Share have been declared after the reporting period.
Further details of dividend payments can be found on page 23.
Return of Capital
If and when the Company is wound up (pursuant to a Shareholder
resolution, including the liquidation resolution) the Company
intends to return to Shareholders the net capital proceeds upon the
eventual sale of the Asset subject to compliance with the Articles
and the applicable laws (including any applicable requirements of
the solvency test contained therein).
Liquidation Resolution
Although the Company does not have a fixed life, the Articles
require that the directors convene a general meeting of the Company
six months before the end of the term of the Lease where an
ordinary resolution will be proposed that the Company proceed to an
orderly wind-up at the end of the term of the Lease (currently
expected to be in June 2022) and the directors will consider (and
if necessary, propose to Shareholders) alternatives for the future
of the Company, including re-leasing the Asset, or selling the
Asset and reinvesting the capital received from the sale of the
Asset in another aircraft.
CHAIR'S STATEMENT
During the Period the Company has declared and paid four
quarterly dividends of 2.25 pence per Share each, at a rate of
dividend payment equivalent to 9 pence per Share.
The Company's investment objective is to obtain income returns
and a capital return for its Shareholders by acquiring, leasing and
then selling a single aircraft. The Company purchased the Aircraft
in December 2010 which it leased to Emirates. A senior secured
finance facility provided by Westpac, in the amount of USD122
million made up the monies along with the placing proceeds for the
acquisition of the Asset. Upon the purchase of the Aircraft, the
Company entered into a 12 year Lease with Emirates with fixed Lease
rentals for the duration. The debt portion of the funding is
designed to be fully amortised over the term of the Lease, which
would leave the Aircraft unencumbered on the conclusion of the
Lease. Emirates bears all costs (including maintenance, repair and
insurance) relating to the Aircraft during the lifetime of the
Lease. At 30 July 2021, the latest practical date prior to this
report, the Company had outstanding debt associated with the
Aircraft totalling USD6.46 million (5% of the initial balance) as
well as unencumbered cash resources of GBP0.69 million (net of the
upcoming quarterly dividend payable at the end of July which
amounts to approximately GBP0.96 million). This unencumbered cash
is, in the absence of any unforeseen costs or event of default,
forecast to grow to approximately GBP2.02million by the time the
Lease expires. At the time of writing the Share price is 33.00
pence, representing a market capitalisation of GBP14.008 million
based on the 42,450,000 Shares in issue. The Company's Lease expiry
falls due in December 2022 and more detail on this event is
provided below.
All payments by Emirates during the Period and throughout the
Lease have been made in accordance with the terms of the Lease. MSN
016, the serial number of the A380 held by the Company, has been
stored since March 2020, at DWC.
COVID-19 has obviously had a devastating impact globally and has
precipitated the biggest disruption to the global aviation industry
in its entire history, adversely impacting the prospects for many
widebody aircraft, including the A380. IATA has recently increased
its forecast for an airline industry-wide net loss for 2021 to
USD47.7 billion while many airlines do not anticipate a full
recovery until 2023 / 4. In the face of such news, it is reassuring
to know that Emirates is one of the world's largest, most dynamic
and stable airlines. Wholly owned by the Government of Dubai, the
airline received financial support from its shareholder in the
third quarter of last year and recent comments give no indication
that further support would not be forthcoming if the recovery is
delayed.
Emirates results for the year to 31 March 2021 reported an
annual loss of USD 5.5 billion, the first non-profitable year in
over three decades. Emirates ended the year with a cash balance of
USD 1 billion. Emirates received capital injections totalling USD
3.1 billion from their ultimate shareholder, the Government of
Dubai. Despite a significant strain on cash assets, Emirates
assured the market that they continued to honour all financial
obligations. Further, Emirates announced that new credit lines and
facilities have been set up to ensure appropriate liquidity is
maintained to mitigate any short term shocks in case the crisis
continues for longer than they anticipate.
Emirates has invested to upgrade its signature A380 experience
with new Premium Economy seats and other product enhancements.
Specifically regarding the A380 Emirates president Sir Tim Clark
recently commented that it "will figure in the Emirates fleet for
the next 15 years" and that "It's hugely popular. 85% of our
profits prior to COVID-19 came from the A380. It was always full
... It was popular in all classes."
Whilst Emirates do not have a formal credit rating, they have
previously issued unsecured USD bonds with maturities in 2023, 2025
and 2028. At the time of writing these instruments are trading at
approximately 101.1, 102.3 and 102.4 cents respectively, equivalent
to USD running yields in the range of roughly 3.8 to 4.4%.Further
details on Emirates and the A380 can be found in the Asset
Manager's report by Doric.
In line with the appraisals obtained last year your Board has
elected to use 'future soft values' for the A380 with the published
figure based on the average of three independent appraisers all of
which have remained the same since the Company's launch. These
values are characterised by less favourable market conditions for
the seller, including but not limited to an imbalance of supply and
demand in the aircraft type. As a result of the COVID-19 pandemic
the vast majority of A380 worldwide remain grounded and therefore,
with a limited number of operators, a high degree of uncertainty
remains over future values. Following a steep decline last year
where the appraised value essentially halved in USD terms the
latest value of the Company's Asset reflects a much more modest
decline of GBP5.4m (approximately 15%) to GBP31.2m on a future soft
value (uninflated) basis. On a USD basis the decline is
approximately 5.5% year-on-year. Based on the current Share price
of the Company the market appears to be discounting the latest
appraisal value by in excess of 50%. The Company's quarterly
factsheet provides a useful sensitivity analysis of the potential
returns to Shareholders, after Lease expiry, under different
scenarios for A380 appraisal values. Further details on residual
values can be found in notes 2(l), 3 and 10 of the accounts.
The Company's Lease with Emirates expires on 16 December 2022,
approximately 17 months from now. The Lease provided Emirates with
an option to purchase the Aircraft at an average appraised
valuation. The option lapsed on 16 May 2021. Following this the
Company's Asset Manager, Doric, in its role as remarketing agent
will pursue with its efforts to remarket MSN 016 for sale or lease,
which may include a lease prolongation with Emirates at any time
before the Lease expires. Given the current situation whereby many
airlines, including Emirates, remain uncertain about future fleet
planning, the Board does not anticipate further news in the near
term.
Your Board believes it would be helpful to outline the
high-level considerations and possibilities surrounding the end of
the Lease and also the implications of the various potential
outcomes for Shareholders. The redelivery procedure for a widebody
aircraft is complex and highly technical and so although this
outline is by no means exhaustive, it should act as a helpful
aide-memoire of the possible pathways as we approach lease end;
1. As stated above, Emirates' option to purchase the Aircraft
and the associated mechanism to affect that option has lapsed. This
does not preclude Emirates from making an offer in the future.
2. As highlighted in the IPO prospectus the Lease provides that
the Aircraft must be redelivered in 'full-life' condition to the
Company by Emirates or a combination of a minimum physical
redelivery condition as set out in the Lease plus a cash
compensation. In the event the Asset is returned in full-life
condition physically it is unlikely that any significant additional
monetary compensation will be received by the Company. Full-life
condition means from a physical perspective an aircraft in 'as new'
condition with all major components having zero flying hours since
all major maintenance checks have been completed.
3. The redelivery condition side letter, which offered Emirates
the option to return the Aircraft at the expiry date of the Lease
in 'half-life' condition rather than 'full-life' condition for a
fixed compensation payment to the Company in the amount of USD12
million has not been exercised. Half-life condition can be thought
of as half-way between major services with the major components of
the Aircraft (engines, landing gear and auxiliary power unit etc)
having half their remaining life left before next overhaul.
4. Whilst the Lease does not provide a specific mechanism for a
lease extension of the Aircraft such an outcome is a possibility.
Between now and the lease expiry the associated secured finance
will have been fully repaid. In the event of a re-lease, the new
monthly lease rate, and the duration of a newly contracted lease
term, would broadly determine the potential quantum of future
dividends.
5. In the event that the Company's Aircraft cannot be sold or
re-leased either to Emirates or a third-party, parting-out the
Aircraft remains an option. The proceeds of such a process would
mainly depend on the condition in which it was redelivered by
Emirates and the demand for spare parts.
The Asset Manager is pursuing a number of avenues in relation to
opportunities for the Asset at lease expiry. As the Board obtains a
clearer view of the possible outcome(s) nearer the Lease expiry we
will continue to communicate with the Company's Shareholders.
Although the Company does not have a fixed life, the Articles
required that the directors convene a general meeting six months
before the end fo the term of the Lease (therefore in June 2022)
where an ordinary resolution will be proposed that the Company
proceed to an orderly wind-up at the end of the term fo the Lease.
The directors will consider (and if necessary, propose to
Shareholders) alternatives for the future of the Company depending
on the outcome(s) of the aforementioned pathways as we approach
Lease end.
This report delivers the second iteration of the Company's ESG
Policy. This provides Shareholders with further detail on the
Company's business model and matters such as the environmental and
social considerations of the aviation industry and the importance
of high standards of Corporate Governance. Your Board recognises
the increasing importance of ESG matters in relation to
shareholders' investment considerations and has sought to address
the topic in a pragmatic fashion, as detailed in our ESG report on
page 33.
Doric continues to monitor the Lease and is in frequent contact
with the Lessee and reports regularly to the Board. Nimrod
continues to liaise with Shareholders on behalf of the Board and
has provided valuable feedback on the views of Shareholders in the
current climate.
Shareholders should note that although the underlying cash flows
received and paid during the Period have been received and paid as
anticipated and in accordance with contractual obligations; it may
not be obvious that this is so because of the application of the
accounting treatments for foreign exchange, rental income and
finance costsmandated by IFRS.
For instance, the entirety of the rental income that is
receivable under the 12 year Lease is credited evenly over each of
the 144 months of the Lease. However rental income is not received
in this uniform pattern, although it does closely match the
similarly uneven pattern of debt servicing and other payments. The
mismatch in timing between the receipt and recognition of rental
income results in large deferred income or accrued income balances
in the balance sheet.
Similarly, the relevant accounting standards require that
transactions denominated in currencies other than the presentation
currency (including, most importantly, the cost of the Aircraft)
are translated into the presentation currency at the exchange rate
ruling at the date of the transaction whilst monetary items
(including also very significantly, the outstanding borrowings and
deferred income creditor) are translated at the rate prevailing on
the reporting date. The result is that the figures sometimes show
large mismatches which are reported as unrealised foreign exchange
differences - although the distortive effect becomes less
pronounced over time as debt is paid down.
On an on-going basis and assuming the Lease rental is received,
and the loan payments are made as anticipated, such exchange
differences do not reflect the commercial substance of the
situation in the sense that the key transactions denominated in USD
are in fact closely matched. Rental income received in USD is used
to make loan repayments due which are likewise denominated in USD.
Furthermore, the USD Lease rentals and loan repayments are fixed at
the inception of the Lease and are very similar in amount and
timing.
The Board encourages Shareholders to read the Company's
quarterly fact sheets which we believe provide a great deal of
interesting information. We hope these regular reports, in addition
to the communication you receive from Nimrod, are useful and
informative. The directors welcome Shareholder engagement and
feedback and encourage you to contact Nimrod to request a meeting
or to relay any feedback.
Finally, on behalf of the Board, I would like to thank our
service providers for all their help and, most importantly, all
Shareholders for their continuing support of the Company during
these difficult times. I look forward to keeping all Shareholders
up to date with further progress.
Charles Wilkinson
Chair
2 August 2021
ASSET MANAGER'S REPORT
At the request of the directors of the Company, this commentary
has been provided by the Asset Manager of the Company.
COVID-19
The Pandemic continues to impact private and economic life
worldwide. The consequences of COVID-19 are far reaching and
changing at a significant pace. The impact of this Pandemic on the
aviation sector has been significant with a large part of the
global passenger aircraft fleet grounded. This Asset Manager's
report is exclusively based on known facts at the time of writing
and does not seek to draw on any speculation about any possible
future, long-term impacts of the pandemic on the aviation sector or
the Company specifically and should be read in such context.
1. The Doric Nimrod Air One Airbus A380
The Airbus A380 is registered in the UAE under the registration
mark A6-EDC. Due to the effects of COVID-19, the Aircraft has been
stored since March 2020, currently at DWC.
Maintenance Status
Emirates maintains its A380 aircraft fleet based on a
maintenance programme according to which minor maintenance checks
are performed every 1,500 flight hours, and more significant
maintenance checks (C checks) at 36-month or 18,000-flight hour
intervals, whichever occurs first.
Due to the continuing Pandemic, Emirates has stored the Aircraft
owned by the Company in Dubai. The Lessee has "a comprehensive
aircraft parking and reactivation programme [in place], that
strictly follows manufacturer's guidelines and maintenance
manuals". In addition, Emirates has enhanced standards and
protocols of their own, to protect and preserve the Asset during
the downtime. This includes the watertight sealing of all apertures
and openings through which environmental factors - sand, water,
birds, and insects - can find their way inside an aircraft. During
parking, maintenance teams complete periodic checks at different
intervals. Depending on the reactivation date of a specific
aircraft, Emirates might defer due maintenance checks, which are
calendar-based, until that time. This would allow the airline to
make use of the full maintenance interval once the operation of a
specific aircraft resumes.
Emirates bears all costs (including for maintenance, repairs,
and insurance) relating to the Aircraft during the lifetime of the
Lease.
Inspections
The Asset Manager conducted a records audit in May 2020 and a
physical inspection of the Aircraft in October 2020. Due to the
storage of the Aircraft and the protective measures associated with
this, the inspection of the Aircraft was limited to viewing the
outside of the aircraft from ground level. The condition of the
Aircraft - to the extent visible - was in compliance with the
provisions of the Lease agreement.
Lease Expiry
The Lease with Emirates expires on 16 December 2022 and provides
the Lessee with an option to purchase the Aircraft. The Company has
notified Emirates about the availability of this option. However,
the Lessee had not made use of this by the contractual deadline,
which was 16 May 2021. For this reason, the Company's remarketing
agent, Doric, will pursue with its efforts to remarket MSN 016 for
sale or lease. Alternatively, although the current Lease does not
entail an extension option beyond its 12 year term, both parties
could agree on a lease prolongation at any time before the Lease
expires.
2. Market Overview
The impact of COVID-19 on the global economy has been severe,
resulting in an estimated contraction in global GDP of 4.3% for
2020, according to the World Bank. This is expected to be followed
by a recovery in growth of 5.5% in 2021. In its latest economic
impact analysis from April 2021, ICAO estimates that the full year
2020 has seen an overall reduction in seats offered by airlines of
50% compared with the previous baseline forecast for that year.
Furthermore, ICAO anticipates this trend to continue through 2021
with airlines reducing seats offered by 34% to 39% compared to 2019
levels. However, the actual impact of COVID-19 on the airline
industry will depend on several factors, including the duration and
magnitude of the outbreak and containment measures, the degree of
consumer confidence in air travel as well as general economic
conditions.
IATA anticipates an airline industry-wide net loss of USD47.7
billion in 2021, according to its latest update from April 2021. On
this occasion it also revised the net loss estimate for the
previous year from nearly USD119 billion to more than USD126
billion, due to larger than anticipated losses in the final quarter
of 2020.
While air passenger demand began its recovery from the low point
in April 2020, IATA notes that the recovery in air travel has been
stagnating due to the global resurgence of the virus and the
related shutdowns during the fourth quarter of 2020. In total,
industry-wide RPKs fell by 65.9% in 2020 - the largest decline in
the history of aviation. Similarly, industry-wide capacity,
measured in ASKs, contracted by 56.7% last year. As a result, the
worldwide PLF fell by 17.5 percentage points to 65.1%.
Due to their reliance on international long-haul routes, Middle
Eastern carriers like Emirates experienced the greatest decline in
RPKs (-72.2%) of any region in 2020. Capacity also fell by 63.3%
during that period. This resulted in an 18.5 percentage point
decrease in PLF to 57.6%.
The latest IATA passenger traffic data from February 2021
demonstrate renewed weakness in air travel following new variants
of the virus leading to a record-high level of confirmed cases in
January 2021 and governments increasing travel restrictions.
However, global new cases of COVID-19 were on a downward trend in
February, around 40% below the record level from January. Despite
this, RPKs in February contracted by 74.7% compared to pre-crisis
February 2019 levels. This deterioration in the air travel recovery
was primarily driven by domestic markets, especially in China,
where citizens were asked to stay at home during the traditional
Chinese New Year travel period. IATA notes that this decline could
reverse in March with flights scheduled in domestic China rising
above pre-crisis levels.
IATA cautions that vaccine distribution efforts are progressing
slowly. At the end of February, there were only 3.3 doses given per
100 people worldwide. Countries have kept international travel
restricted to avoid importing new variants and because both sides
of the route require low infection rates. Only Africa and the
Middle East have begun to ease flight restrictions as of February
2021.
Source: IATA, ICAO
(c) International Air Transport Association, 2021. Air Passenger
Market Analysis December 2020. Air Passenger Market Analysis
February 2021 . Outlook for the Global Airline Industry - Update
April 2021. All Rights Reserved. Available on the IATA Economics
page .
(c) International Civil Aviation Organization. Effects of Novel
Coronavirus (COVID-19) on Civil Aviation: Economic Impact Analysis,
20 April 2021.
3. Lessee - Emirates
Network
Emirates' recovery efforts continued at the beginning of 2021
with the restart of operations to destinations in the Americas. As
of the beginning of March, Emirates had resumed flights to 10
destinations in North America: Boston, Chicago, Dallas, Houston,
Los Angeles, New York JFK, San Francisco, Seattle, Toronto, and
Washington DC. Emirates also increased the frequencies of its
services to New York, Los Angeles, and Sao Paulo. Additionally,
Emirates announced plans to increase services to the Maldives and
Seychelles ahead of the Easter holiday. Emirates is primarily using
Boeing 777 aircraft to serve these destinations.
However, Emirates has also had to demonstrate flexibility in its
recovering operations amid worsening COVID-19 cases. At the end of
January, the UK restricted the entry of passengers who arrived from
or transited through the UAE to those with British or Irish
passports or UK residency and banned direct flights from the
country. In response, Emirates is providing outbound passenger
services from the UK to Dubai, primarily for UAE residents. By the
end of March 2021, Emirates had restored services to over 120
passenger and cargo destinations worldwide, reaching 42% of its
total capacity compared to the previous year. Emirates operated
flights to 157 destinations in 82 countries before the pandemic
started.
Emirates' president Sir Tim Clark stated in February that the
carrier will recover from the COVID-19 crisis without any
fundamental changes to its business model. Rather, Emirates intends
to use its mix of widebody aircraft to take advantage of
anticipated supply-side shortages in medium- and long-haul sectors
in the coming years. At the same time, he revised his earlier
prediction according to which medium- and long-haul international
traffic would ramp up significantly in July and August this year.
He now expects such developments in the last quarter of 2021: "At
the end of the day, my view is that once we are through this,
demand for air travel will return, consumer confidence will
return."
In February, Emirates announced that it has become among the
first airlines in the world to operate a flight with fully
vaccinated frontline teams across all customer touchpoints,
including check-in and security personnel, as well as engineers,
pilots, and cabin crew. About a month into its vaccination
programme, close to 26,000, or 44%, of Emirates Group's UAE
frontline aviation workforce, which includes Emirates and air
service provider dnata, have already received both doses of the
vaccine.
In March, Emirates and TAP signed a Memorandum of Understanding
to expand the codeshare partnership currently in place between both
airlines. TAP passengers will gain access to Emirates' destinations
in East Asia, while Emirates passengers will be able to access
additional domestic destinations in Portugal as well as to cities
in the USA, Canada, Mexico, Brazil, Senegal, Guinea-Bissau,
Guinea-Conakry, Morocco, Tunisia, Gambia, and Cape Verde. The
carriers also intend to explore ways to cooperate on their
respective frequent flyer and stopover programmes.
In April, Emirates commenced trials of IATA's Travel Pass on a
flight from Dubai to Barcelona. The Travel Pass is a mobile
application with an integrated registry of travel requirements
designed to enable passengers to manage their travel in line with
any government requirements for COVID-19 testing or vaccine
information.
Fleet
For the last year or so, Emirates' operations have largely
focused on cargo services using its fleet of Boeing 777 aircraft.
To meet the global demand for the transport of essential supplies,
Emirates SkyCargo introduced freighter services using passenger
aircraft as well as 19 Boeing 777-300ER 'mini-freighters' converted
for cargo operations. Emirates SkyCargo also made use of A380
'mini-freighters' on select cargo charter operations during this
time. As of mid-March, Emirates SkyCargo has operated more than
27,800 cargo-only flights on passenger aircraft, which have
transported more than 100,000 tonnes of essential supplies. In
total, about a third of Emirates' passenger aircraft was used for
cargo operations.
The table below details the passenger aircraft fleet activity as
of 31 March 2021:
Passenger Fleet Activity
Aircraft Type Grounded In Service
-------- ----------
A380 102 15
-------- ----------
777 1 134
-------- ----------
Total 103 149
-------- ----------
% 41 % 59 %
-------- ----------
Source: Cirium as of 31 March 2021
In late January 2021 , Boeing announced a further delay to the
777X programme , now pushing the delivery of the first of the type
to at least late 2023. Given the delay, the 777X might not enter
into service with Emirates as late as 2025 and so the carrier now
intends to operate the A380 on trunk routes through to the
mid-2030s with the 777X gradually replacing A380s leaving the
fleet. In this context, Emirates President Sir Tim Clark has even
raised the prospect of switching orders from the 777X to the 787
Dreamliner, a smaller aircraft family compared to the 777X. He also
noted that the use of generally smaller aircraft will result in
slot capacity issues, once traffic levels return after the
Pandemic.
According to the airline's chief operating officer, Emirates is
discussing dates and schedules of new aircraft deliveries with
Airbus and Boeing. Additionally, amid the uncertainty of the new
deliveries, Sir Tim Clark emphasized that the A380 will continue to
play an ongoing role at Emirates for at least another 15 years,
underscoring that the A380 accounted for 85% of profits and was
"always full" prior to the Pandemic.
Key Financials
In the financial year end ing 31 March 202 1 , Emirates recorded
its first loss in over 30 years. Revenues fell 66.4% to AED 30.9
billion (USD 3.7 billion) due to the global Pandemic. As a result,
Emirates recorded a net loss of AED 20.3 billion (USD 5.5 billion)
compared to a profit of AED 1.1 billion (USD 287.7 million) in the
previous financial year .
The number of passengers Emirates carried fell 88% to 6.6
million during the financial year following the suspension of
passenger operations in the early part of the year and the
subsequent sluggish recovery . As a result, Emirates reduced its
ASKs by 83% in the 2020/21 financial year, while RPKs were down by
90%. During this period, Emirates' average PLF fell to 44.3%,
compared to last year's pre-Pandemic figure of 78.5%.
In response to the crisis, Emirates took a number of actions to
reduce costs, including reducing its workforce by 32.0%. It also
trimmed its fleet by a net 11 units. This includes five A380. One
was retired during the financial year. A further four were taken
out of operations as they are currently grounded and not expected
to be used before their scheduled retirement dates within the
2021/22 financial year. Additionally, the carrier sought to
restructure certain financial obligations, renegotiate contracts,
and consolidate its operations. Overall, Emirates reduced its total
operating costs by 46.4%. This was attributable to lower nominal
cost in all but one operating cost category. Charges for
depreciation, amortization and impairment increased, and its share
in total operating costs amounted to 42.9%. Jet fuel, traditionally
the single largest cost category with Emirates, represented a share
of 13.9% in the total operating cost. Despite this significant
reduction in operations, the carrier's EBITDA remained positive at
AED 4.6 billion (USD 1.3 billion).
While demand for air passenger travel was down during the
2020/2021 financial year, airfreight demand rose strongly. In fact,
Emirates SkyCargo increased its revenues by 52.6% to AED 17.1
billlion (USD 4.7 billion) during this period. The volume of cargo
uplifted decreased by 21.6% to 1.9 million tonnes due to the lower
belly capacity available, while the yield nearly doubled. This
development reflects the extraordinary market situation during the
global Pandemic.
In February 2021, Adel Al Redha, Emirates COO, noted that
freight revenues exceeded the airline's expectations. Revenue from
cargo operations amounted to 56.6% of Emirates' total revenues
during the last financial year, up from 12.8% in the period before.
However, passenger travel revenues appear to be volatile, depending
on the measures taken by countries to overcome the Pandemic.
As of 31 March, Emirates' total liabilities decreased by 11.3%
to AED 131.6 billion (USD 35.9 billion USD) compared to the end of
the previous financial year. Total equity decreased by 14.6 % to
AED 20.1 billion (USD 5.5 billion ) with an equity ratio of 13. 3%.
Emirates' cash position amounted to AED 4 billion (USD 1 billion)
at the end of March 2021. This compares to AED 20.2 billion (USD
5.5 billion) in cash assets at the beginning of the 2020/21
financial year. The drop in liquid funds was mainly driven by
ticket refund payments to customers in the amount of AED 8.5
billion (USD 2.3 billion), while the cash flow from operating
activities was AED 4.0 billion (USD 1.1 billion) positive.
On the ongoing financial position of Emirates in light of the
global pandemic, HH Sheikh Ahmed bin Saeed Al Maktoum, chairman and
chief executive of Emirates, stated: " Our top priorities
throughout the year were: the health and wellbeing of our people
and customers, preserving cash and controlling costs, and restoring
our operations safely and sustainably. Emirates received a capital
injection of AED 11.3 billion (USD 3.1 billion) from our ultimate
shareholder, the Government of Dubai... [This] helped us sustain
operations and retain the vast majority of our talent pool."
As at the end of June 2021, Emirates has outstanding USD debt
issuances with maturities in 2023, 2025, and 2028. These respective
bonds were trading at above par (100 cents) each and with running
yields ranging from approximately 3.8% to 4.4% in USD. There has
also been no upward pressure on yields. This level of yields does
not appear to indicate that the market sees any significant
financial stress to the issuer. In its latest annual financial
report the auditor PricewaterhouseCoopers issued an unqualified
audit report and the airline stated it "remains confident to meet
our financial commitments as they fall due in the coming year and
beyond through proactive working capital management and utilisation
of available credit lines and facilities".
Source: Bloomberg, Cirium, Emirates, Khaleej Times
4. Aircraft - A380
As of the end of March 2021, the global A380 fleet consisted of
240 planes with airline operators. Only 23 of these aircraft were
in service, the remainder of the fleet is currently parked due to
COVID-19. The fifteen operators are Emirates (117), Singapore
Airlines (19), Deutsche Lufthansa (14), Qantas (12), BA (12),
Korean Air Lines (10), Etihad Airways (10), Qatar Airways (10), Air
France (9), Malaysia Airlines (6), Thai Airways (6), Asiana
Airlines (6), China Southern Airlines (5), and All Nippon Airways
(3), and Hi Fly (1). Another five aircraft are on order.
In February 2021, Qantas chief executive officer Alan Joyce
contradicted earlier suggestions from experts that the Australian
carrier's parked A380s could be permanently removed from future
fleet plans: "So we do believe that there's a need for that fleet
and we do believe it's going to generate cash, and it's all going
to be about cash when we start up international." The airline is
now planning to restart regular international passenger flights to
most destinations from 31 October 2021.
At the Royal Aeronautical Society conference on 15 March, BA CEO
Sean Doyle confirmed the carrier's intentions to return the A380 to
service, stating that the aircraft type is "an important part of
our fleet, and at the minute our plans are to obviously fly [it
again]". He added that the A380 "works very well in a number of
larger markets". BA has not provided a timeline for the return of
the A380 to operations.
Also in March, Lufthansa Group CEO Carsten Spohr confirmed that
the A380 will be phased out as a part of its fleet remodelling. In
total, Lufthansa plans to reduce its group fleet size by
approximately 200 aircraft (approximately 25% of its current fleet)
by 2023.
Thai Airways International has begun to gauge market interest
for two of its six A380s. In March, the carrier issued a request
for indication of interest for the 2013-built aircraft (MSNs 125
and 131). The carrier added that, given the ongoing preparation of
its rehabilitation plan, it will formally invite bidders to submit
"official proposals" following a court order approving that
plan.
With the final production A380 aircraft ferried to Hamburg in
March for interior outfitting and painting, Airbus will now
concentrate on supporting the in-service fleet of A380s "for as
long as possible", according to its chief executive Guillaume
Faury.
An April analysis report from Cirium stated that, while older
A380 aircraft are more likely to be phased out, airlines will be at
least partially incentivized to retain and operate their A380s for
at least the next five years, because of the cost of an early
phase-out. In fact , the report notes that there have been very few
formal decisions to remove the A380 from fleets since the beginning
of the COVID-19 crisis, with Air France being the only operator to
have explicitly retired aircraft. This is also because, for some
operators, such as BA, Emirates and Qantas, the A380 remains an
important part of the fleet and hub network, as industry experts
state in the report. However, the report adds that growing concerns
around sustainability and other factors could further decrease the
likelihood of a second-hand market developing for the A380.
Regarding Emirates, the report stated that " it remains unclear how
many of Emirates' A380s will return to service - and at what speed"
but the carrier is better positioned than any other carrier to
sustain large-scale A380 fleet capacity.
Source: Cirium
DIRECTORS
As at 31 March 2021 the Company had four directors all of whom
were independent and non-executive.
Charles Edmund Wilkinson - Chair of the Company and Nomination
Committee
Charles Wilkinson is a solicitor who retired from Lawrence
Graham LLP in March 2005. While at Lawrence Graham he specialised
in corporate finance and commercial law, latterly concentrating on
investment trust and fund work.
Charles is a director of Doric Nimrod Air Two Limited and Chair
of Doric Nimrod Air Three Limited. Charles is also a director of
Landore Resources Ltd, a Guernsey based mining exploration company.
He is resident in Guernsey.
Geoffrey Alan Hall - Chair of the AR Committee
Geoffrey Hall has extensive experience in asset management,
having previously been Chief Investment Officer of Allianz
Insurance plc, a major UK general insurance company and an
investment manager at HSBC Asset Management, County Investment
Management, and British Railways Pension Funds. Geoffrey is also
the Chair of Doric Nimrod Air Two Limited and a director and Chair
of the AR Committee of Doric Nimrod Air Three Limited.
Geoffrey earned his master's degree in Geography at the
University of London and is an associate of the CFA Society of the
UK. He is resident in the United Kingdom.
Suzanne Elaine Procter - SID
Suzie Procter brings over 39 years' experience in financial
markets, with specific expertise in asset management. She was
previously a non-executive director of TR Property Investment Trust
plc, an investment company listed on the FTSE 250 index. Her
executive roles included Partner and member of the Executive
Management Committee at Cantillon Capital Management LLC, Managing
Director of Lazard Asset Management, Head of Institutional Sales at
INVESCO Asset Management, Director and Head of Fixed Income
Business at Pictet International Management Ltd and Head of Fixed
Income at Midland Montagu Asset Management.
Suzie is also the SID of Doric Nimrod Air Two Limited and Doric
Nimrod Air Three Limited. She is resident in the United
Kingdom.
Andreas Josef Tautscher - Chair of the Management Engagement
Committee
Andreas Tautscher brings over 32 years' financial services
experience. He serves as a non-executive director and member of the
Audit Committee of BH Global Limited, a Guernsey closed-ended
investment company whose shares are traded on the Main Market of
the LSE, and as a non-executive director of MJ Hudson Group plc, a
Jersey company whose shares are traded on the AIM Market of the
LSE. He is also a director and Chair of Arolla Partners , a leading
independent director services business in the Channel Islands. From
1994 to 2018 Andreas held various roles at Deutsche Bank and was
most recently CEO of the Channel Islands and Head of Financial
Intermediaries for EMEA. He was previously a non-executive director
of the Virgin Group. Andreas qualified as a Chartered Accountant in
1994.
Andreas is also Chair of the AR Committee of Doric Nimrod Air
Two Limited, Chair of the Management Engagement Committee of Doric
Nimrod Air Two Limited and Doric Nimrod Air Three Limited, and a
director of Doric Nimrod Air Three Limited. He is resident in
Guernsey.
SERVICE PROVIDERS
Management and the Delegation of Functions
The directors, whose details are set out on page 16, are
responsible for reviewing the business affairs of the Company in
accordance with the Articles and have overall responsibility for
the Company's activities including all business decisions, review
of performance and authorisation of distributions. The Company has
delegated management of the Aircraft to Doric, which is a company
incorporated in Germany. Further details are outlined below under
the heading Asset Manager. The directors delegate secretarial and
administrative functions to JTC which is a company incorporated in
Guernsey and licensed by the GFSC for the provision of
administration services. The registrar function is delegated to the
Registrar, which is licensed and regulated by the GFSC.
Asset Manager
Doric has been appointed by the Company to provide asset
management services to the Company. Pursuant to the Asset
Management Agreement, Doric will: (i) monitor Emirates' and any
subsequent lessees' performance of its obligations under the Lease
and any subsequent leases respectively (which shall include the
obligations relating to the maintenance of insurance cover); (ii)
provide the Company with information regarding alternatives with
respect to any potential sale or re-lease of the Asset; (iii) carry
out mid-lease inspections of the Asset; (iv) provide the Company
with asset monitoring reports describing the state and any material
changes to the state of the Asset; and (v) liaise, as and when
necessary, with lenders, on all matters relating to the loan, as
required.
Doric has further undertaken that it will dedicate sufficient
time and resources as it reasonably believes is required from time
to time to fulfil any contractual arrangements it enters into with
the Company.
The Doric Group is a member of ISTAT and is a leading provider
of products and services for investors in the fields of aviation,
shipping, renewable energy and real estate. The Doric Group has an
international presence, with offices in Germany, Hong Kong, the
United Kingdom, and the United States, and a multinational team
which offers access to extensive relationship networks and expert
asset knowledge maintaining regulated financial institutions in
Europe. One of the firm's core competencies is its asset management
expertise, which is an integrated part of all Doric transactions
and a cornerstone of the business. For further information about
the Doric Group, please visit www.doric.com.
The aircraft portfolio currently managed by the Doric Group is
valued at $7 billion and consists of 42 aircraft under management.
These aircraft include commercial airliners ranging from ATR
72-500s and the Airbus A320 family, through the Boeing 737, 777,
787 and Airbus A330, up to the Boeing 747-8F and Airbus A380.
The Doric Group has 22 Airbus A380 aircraft currently under
management and is therefore considered well positioned to perform
the technical asset management of this aircraft type.
Corporate and Shareholder Adviser
Nimrod, which is authorised by the FCA has been appointed as the
Corporate and Shareholder adviser by the Company.
Nimrod was founded in 2008 as an independent organisation which
specialises in generating and sourcing interesting investment
funds, themes and solutions managed by experts in their fields for
the professional investor marketplace. It has launched nine listed
investment companies since its formation and it also provides
investment, marketing, distribution and advisory services to
investment companies and their boards and managers.
Nimrod, together with Doric and Emirates, was awarded the
"Innovative Deal of the Year 2010 award" by the international
aviation magazine Airfinance Journal in recognition of the
innovative financing of an Airbus A380 leased to Emirates by the
Company, which was the first stock market listed aircraft
investment vehicle.
Secretary & Administrator
JTC is an independent provider of institutional and private
client services to clients in numerous jurisdictions and is a
member of the JTC Group. For further information about the JTC
Group please visit www.jtcgroup.com .
JTC is a Guernsey incorporated company and provides
administration and secretarial services to the Company pursuant to
an Administration and Secretarial Agreement. In such capacity, JTC
is responsible for the general secretarial functions required by
the Law and assists the Company in its compliance with its
continuing legal and regulatory obligations, as well as providing
advice on good corporate governance and best practice for a
publicly traded company.
JTC is also responsible for the Company's general administrative
functions and for the preparation of unaudited half-yearly and
audited annual financial reports, subject to the direction and
oversight of the Board.
Registrar
The Registrar is the Company's CREST compliant registrar. The
Registrar is responsible for the maintenance of the Company's Share
register and for the processing of dividend payments and stock
transfers. The Registrar is licensed and regulated by the GFSC and
further information about the Registrar may be obtained from their
website at www.jtcgroup.com.
Liaison Agent
Amedeo Services (UK) Limited had been appointed by the Company,
pursuant to the Amended Liaison Services Agreement, to act as
Liaison agent. The Board considered that the services of the
Liaison agent were no longer required and the Liaison Services
Agreement was terminated on 21 April 2021.
Review
The Board keeps under review the performance of the Asset
Manager, Corporate and Shareholder Adviser, the Secretary,
Administrator and the Registrar and the powers delegated to each
service provider. In the opinion of the Board, the continuing
appointments of the service providers on the terms agreed are in
the best interests of Shareholders as a whole.
A full list of the Company's service providers is set out on
page 89.
MANAGEMENT REPORT
A description of important events which have occurred during the
financial year under review, their impact on the performance of the
Company as shown in the financial statements and a description of
the principal risks and uncertainties facing the Company are given
in the Chair's Statement, Asset Manager's Report, Statement of
Principal Risks and the notes to the financial statements contained
on pages 61 to 88 and are incorporated here by reference.
T h e re w ere no ma t erial r ela t ed pa r ty tra nsact ions w
hich t ook place in t he Period, o t her t han t hose disclosed at
no te 22 of t he no t es to t he f i n anci al st a t emen ts.
Principal Risks and Uncertainties
The Board has undertaken a robust assessment of the principal
risks facing the Company and has undertaken a detailed review of
the effectiveness of its risk management and internal control
systems. The Board is comfortable that the risks are being
appropriately monitored on a regular basis.
The risks set out below are those which are considered to be the
material risks relating to an investment in the Shares but are not
the only risks relating to the Shares or the Company. Additional
risks and uncertainties of which the Company is presently unaware
or that the Company currently believes are immaterial may also
adversely affect its business, financial condition, results of
operations or the value of the Shares.
The principal risks associated with the Company are:
-- Operational risk: The Board is ultimately responsible for all
operational facets of performance including cash management, asset
management, regulatory and listing obligations. The Company has no
employees and so enters into a series of contracts/legal agreements
with a series of service providers to ensure both operational
performance and the regulatory obligations are met. This risk has
been mitigated by the Company using well established, reputable and
experienced service providers and assessing service providers'
continued appointment on at least an annual basis.
-- Investment risk: There are a number of risks associated with
the Company's Asset in relation to the occurrence of technical
faults with the Asset or actions by third parties causing both
damage to the Asset and also damaging the demand for global air
travel. This risk has been mitigated by the Lessee's contractual
responsibility to insure, repair and maintain the Aircraft for the
duration of the Lease.
-- Borrowings and financing risk: There is a risk that the
Company is exposed to fluctuations in market interest rates and
foreign exchange rates. This risk has been mitigated by ensuring
that loan repayments are made from lease rental revenues received
in the matching currency and by fixing the interest rates on loan
and lease rentals.
-- Credit risk: Emirates is the sole lessee of the Asset and is
headquartered in the Middle East. Should Emirates default on the
rental payments due to domestic events, events in the wider airline
industry or other reasons it is unlikely the Company will be able
to meet its targeted dividends or, in the case of ongoing default,
continue as a going concern. The risk of default is potentially
mitigated by the ability of the Company to sell or re-lease the
Asset in the event of a single default. However, this could be
impacted by market conditions at the time.
-- Secondary market risk: There is a risk that the Company would
not be able to achieve the projected resale value of the Asset due
to changes in demand for second hand aircraft of the type owned by
the Company. The Board monitors, and revises the residual value of
the Aircraft on an annual basis.
-- Regulatory risk : The Company is required to comply with the
DGTRs of the FCA and the requirements imposed by the Law and the
GFSC. Any failure to comply could lead to criminal or civil
proceedings. Although responsibility ultimately lies with the
Board, the Secretary also monitors compliance with regulatory
requirements.
-- Valuation risk : There is a risk that the useful life or
residual value used in determining depreciation are not appropriate
or accurately calculated. The Board assess, based on the latest
forecast valuations, particularly in light of COVID-19, whether the
selected residual values remains as an appropriate basis of
valuation and with consideration to the range of estimates provided
by the external valuers. The Group has a robust audit process to
ensure that valuations accurately reflect the requirements of
IFRS
-- Global Pandemic: The emergence of a global Pandemic has had a
profound and negative impact on the operations and performance of
the Company and may directly or indirectly affect some of the other
risks mentioned in this table. The Board and its key service
providers all act to the best of their abilities to protect the
welfare of the various teams involved in the affairs of the Company
to ensure operations are maintained to the extent possible, and to
protect and support the assets of the Company for as long as is
required. Please refer to the Chair's Statement, the Asset
Manager's Report and the going concern statement below for more
information on how the Company is being affected by COVID-19.
Data Protection
The Company has implemented measures designed to ensure its
compliance with the EU General Data Protection Regulation (EU)
2016/679 and associated legislation in Guernsey. The Company has
also issued a privacy notice explaining the data it holds, how the
data is processed and its procedures for processing this data. This
notice is available for review and download at the Company's
website.
Going Concern
The Company's principal activities are set out within the
Company Overview on page 6. The financial position of the Company
is set out on page 58. In addition, note 19 to the financial
statements includes the Company's objectives, policies and
processes for managing its capital, its financial risk management
objectives and its exposures to credit risk and liquidity risk.
The directors in consultation with the Asset Manager are
monitoring the continuous effect of the Pandemic generally on the
aviation industry and specifically on the Company's aircraft value
and the financial wellbeing of its Lessee both now and in the
future. The Pandemic continues to have a pervasive impact on the
global economy and it remains possible that the Company's future
performance could be impacted in this prolonged period of
uncertainty. In many jurisdictions restrictions on the ability of
people to travel still adversely affect the airline sector, and by
extension the aircraft leasing sector. The risk therefore remains
that some airlines may not be able to pay rent as it falls due. The
impact of the Pandemic on the aviation industry has been
significant with a large part of the global passenger aircraft
fleet temporarily grounded. These factors, together with wider
economic uncertainty and disruption, have had an adverse impact on
the future value of the Aircraft owned by the Company, and could
also negatively impact on the sale, re-lease, refinancing or other
disposition of the Aircraft.
Given the prolonged impact of the Pandemic, increased lessee
counterparty credit risk remains in existence and there could be
requests for Lease rental deferrals. Reduced rents receivable under
the Lease may not be sufficient to meet the fixed loan interest and
regular repayments of debt scheduled during the life of the Loan
and may not provide surplus income to pay for the Company's
expenses and permit the declaration of dividends.
The option to remarket the Aircraft following a potential event
of default by the Lessee has not been taken into account. The
period of time necessary to successfully complete such a process is
beyond the twelve months forecasting horizon of the going concern
considerations. This applies in particular in times of COVID-19, as
various restrictions are still in place to contain the
Pandemic.
Based on current information the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future, although the risk
to this is clearly higher compared to a pre-COVID-19
environment.
The directors have considered Emirates' ability to continue
paying the Lease rentals over the next 12 months and are satisfied
that the Company can meet its liabilities as they fall due over
this period. Further detail regarding the assumptions adopted when
forming this conclusion can be found in the Viability Statement
below. The directors consider that the going concern basis of
accounting remains appropriate however note a material uncertainty
below.
Although the Company does not have a fixed life, the articles of
incorporation require that the Directors convene a general meeting
of the Company six months before the end of the term of the Lease
where an ordinary resolution will be proposed that the Company
proceed to an orderly wind-up at the end of the term of the Lease
(the "Liquidation Resolution") and the directors will consider (and
if necessary, propose to Shareholders) alternatives for the future
of the Company, including re-leasing the Asset, or selling the
Asset and reinvesting the capital received from the sale of the
Asset in another aircraft.
The outcome of the Liquidation Resolution will be known at a
point within the 12 month period commencing on the date when the
Board approved the Annual Financial Report ("AFR"), which is due to
take place in June 2022. This is six months before the end of the
lease term in December 2022 and creates a material uncertainty that
may cast significant doubt on the Company's ability to continue as
a going concern. In this event, the Company would proceed with an
orderly wind-up after the lease-end. Such a determination would
mean that the Company, though solvent and able as before to meet
its liabilities as they fall due, would no longer meet the
definition of a going concern i.e. an entity which will continue
its operations for the foreseeable future.
Viability Statement
In accordance with Provision 31 of the Code, the directors of
the Company have considered the prospects of the Company over the
period from present until the Lease is due to terminate in December
2022, a period of approximately seventeen months. In choosing the
period of viability for the Company the Board has considered the
prospect of Emirates performing their obligations until the end of
their Lease.
The Board, in assessing the viability of the Company, has paid
particular attention to the principal risks faced by the Company as
disclosed in the Management Report and the notes to the financial
statements, reviewing on an ongoing basis the risks faced and
ensuring that any mitigation measures in place are functioning
correctly.
In addition, the Board has considered a detailed cashflow
projection for the running costs of the Company and has assumed
that Emirates is a going concern. The Board believes that it is
reasonable to assume as of the date of the approval of the annual
financial report that Emirates will continue with the contracted
lease rental payments due to the following:
- Emirates continues to be a going concern as at the date of the
Lessee's latest signed annual financial report for the financial
year ended on March 31, 2021.
- Challenged by an unprecedented drop in passenger air travel
during 2020, the Lessee reacted quickly and temporarily adjusted
its business model with a particular focus on air cargo services.
The high Pandemic-driven demand in this space helped the Lessee to
contain its losses in the passenger segment.
- Although Emirates concluded its last financial year with the
first net loss in more than 30 years and refunded already paid
tickets in the amount of US$ 2.3 billion, it still has a
substantial cash position, which also benefited from the support of
its ultimate shareholder.
- Emirates confirmed to have access to the capital markets and
was able already able to secure committed offers for the financing
of two upcoming aircraft deliveries.
- The Government of Dubai has injected capital in the combined
amount of US$3.1 billion into Emirates so far, since the Pandemic
brought global air travel to a near halt. It previously had
publicly confirmed that they will financially support Emirates
during this period , indicating the trust capital markets have in
Emirates .
- Emirates' listed debt and CDS's are trading at non-distressed levels.
- As of the date of the annual financial report, the Board is
not aware of a formal request to the Company for a Lease payment
deferral or any other efforts that would result in the
restructuring of the existing transaction.
- Emirates has paid all the Lease rentals to the Company in a timely manner.
- If end of lease negotiations with Emirates have not been
concluded by the end of the term of the current Lease, the Lease
rentals due under the existing agreement must continue to be
paid.
The Company retains sufficient cash to cover the forecast
operating costs of the Company until the termination date of the
Lease in December 2022, assuming receipt of planned rental
income.
The directors believe that their assessment of the viability of
the Company over the period chosen was sufficiently robust and
encompassed the risks which would threaten the business model,
future performance, solvency or liquidity of the Company.
As a result of their review, the directors of the Company have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due until the
termination date of the Lease in 2022, however there is a material
uncertainty noted in the going concern section above on page
20-21.
Responsibility Statement
The directors jointly and severally confirm that to the best of
their knowledge:
(a) the financial statements, prepared in accordance with IFRS
give a true and fair view of the assets, liabilities, financial
position and profits of the Company and performance of the
Company;
(b) this Management Report includes or incorporates by reference
a fair review of the development and performance of the business
and the position of the Company, together with a description of the
principal risks and uncertainties that it faces; and
(c) the annual report taken as a whole is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Company's position, performance,
business model and strategy.
Charles Wilkinson Geoffrey Hall
Chair Director
2 August 2021
DIRECTORS' REPORT
The directors present their annual report and audited financial
statements of the Company for the financial year ended 31 March
2021.
Principal Activities and Business Review
The principal activity of the Company is to acquire, lease and
then sell a single aircraft. The directors do not envisage any
change in these activities for the foreseeable future. A
description of the activities of the Company in the year under
review is given in the Chair's Statement and the Asset Manager's
Report respectively on pages 7 to 10 and 11 to 15.
Status
The Company is a Guernsey domiciled company the Shares of which
are admitted to trading on the SFS. Its registered number is 52484.
The Company operates in accordance with the Law.
Results and Dividends
The results of the Company for the financial year are set out on
page 57.
The Company declared dividends during the financial year under
review as follows:
Quarter End Announcement Date Payment Date Dividend per Share
(pence)
31 March 2020 16 April 2020 30 April 2020 2.25
------------------- ----------------- -------------------
30 June 2020 16 July 2020 31 July 2020 2.25
------------------- ----------------- -------------------
30 September 2020 15 October 2020 30 October 2020 2.25
------------------- ----------------- -------------------
31 December 2020 14 January 2021 29 January 2021 2.25
------------------- ----------------- -------------------
The Company declared the following dividends after the financial
year end:
Announcement Date Payment Date Dividend per Share (pence)
14 April 2021 30 April 2021 2.25
------------------------ ---------------------------
30 July 2021 (expected
15 July 2021 payment date) 2.25
------------------------ ---------------------------
The Company aims to continue to pay quarterly dividends of 2.25
pence per Share, in line with the Distribution Policy. There is no
guarantee that any future dividends will be paid.
Directors
The directors in office are shown on page 16 and all directors
remain in office as at the date of signing of these financial
statements. Further details of the directors' responsibilities are
given on page 22.
No director has a contract of service with the Company, nor are
any such contracts proposed.
The following interests in Shares of the Company are held by
persons discharging directorial responsibility and their persons
closely associated:
Number of Shares Number of Shares
held held
as at 31 March 2021 as at 30 July 2021
Charles Wilkinson 100,000 100,000
Geoffrey Hall 70,000 70,000
Suzie Procter 12,500 12,500
Andreas Tautscher 6,400 6,400
Other than the above shareholdings, none of the directors nor
any persons connected with them had a material interest in any of
the Company's transactions, arrangements or agreements during the
year and none of the directors has or has had any interest in any
transaction which is or was unusual in its nature or conditions or
significant to the business of the Company, and which was effected
by the Company during the reporting year.
As at the financial year end and as at the date of this report,
there are no outstanding loans or guarantees between the Company
and any director.
There were no material related party transactions which took
place in the financial year under review, other than those
disclosed in the Directors' Report and at note 22 to the financial
statements.
Substantial Controllers of Voting Rights
The Company has identified the following substantial controlling
interests in voting rights attached to the Company's issued Share
capital in accordance with Chapter 5 of the DGTRs. These are based
on notifications made to the Company since inception and may differ
substantially from positions recorded on the Company's Share
register.
There have been no material changes in the below list of
substantial controlling interests between the end of the year under
review and 30 July 2021, being the latest practicable date prior to
the date of approval of this report.
Name % of Total Voting Rights Number of Shares
Weiss Asset Management LP 12.72% 42,450,000
City of Bradford Metropolitan District Council 10.60% 4,500,000
East Riding of Yorkshire Council 10.60% 4,500,000
Nestle Capital Management Limited 9.42% 4,000,000
Corporate Governance
Statement of Compliance with the Code, as published in July
2018
As a Guernsey incorporated company and under the DGTRs, the
Company was not, for the year under review, required to comply with
the Code. The Company has, however, voluntarily committed to comply
with the Code or explain any departures. A copy of the Code is
available for download from the FRC's website (www.frc.org.uk).
Having reviewed the Code, the Board considers that it has
maintained procedures during the year to ensure that it has
complied with the Code, other than the following exceptions:
(i) Provision 2: The board should assess and monitor culture.
Provision 5: The board should understand the views of the
company's other key stakeholders and describe in the annual report
how their interests and the matters set out in section 172 of the
Companies Act 2006 have been considered in board discussions and
decision-making. The board should keep engagement mechanisms under
review so that they remain effective.
For engagement with the workforce, one or a combination of the
following methods should be used:
-- a director appointed from the workforce;
-- a formal workforce advisory panel;
-- a designated non-executive director.
Provision 6: There should be a means for the workforce to raise
concerns in confidence and - if they wish - anonymously.
Company Response: the Company does not have any employees and
therefore does not assess and monitor culture or engage with the
workforce;
(ii) Provision 10: The board should identify in the annual
report each non-executive director it considers to be independent.
Circumstances which are likely to impair, or could appear to
impair, a non-executive director's independence include, but are
not limited to, whether a director:
-- has, or has had within the last three years, a material
business relationship with the company, either directly or as a
partner, shareholder, director or senior employee of a body that
has such a relationship with the company;
-- holds cross-directorships or has significant links with other
directors through involvement in other companies or bodies;
-- has served on the board for more than nine years from the date of their first appointment.
Where any of these or other relevant circumstances apply, and
the board nonetheless considers that the non-executive director is
independent, a clear explanation should be provided.
Provision 19: The chair should not remain in post beyond nine
years from the date of their first appointment to the board. To
facilitate effective succession planning and the development of a
diverse board, this period can be extended for a limited time,
particularly in those cases where the chair was an existing
non-executive director on appointment. A clear explanation should
be provided.
Company Response: the Board considers the directors to be
independent. The directors of the Company are also directors of
other DNA Companies and therefore the Board has implemented
measures to manage any conflicts which might arise as a result of
these appointments. The Chair and one director have been in situ
since incorporation of the Company in October 2010 which exceeds
the nine year provision. The Company's sole Asset has a fixed lease
term of 12 years and as such the Board considers that continuity is
important in the final years of the Company's life;
(iii) Provision 9: The chair should be independent on
appointment when assessed against the circumstances set out in
Provision 10. The roles of chair and chief executive should not be
exercised by the same individual.
Company Response: there is no chief executive;
(iv) Provision 20: Open advertising and / or an external search
consultancy should generally be used for the appointment of the
chair and non-executive directors. If an external search
consultancy is engaged it should be identified in the annual report
alongside a statement about any other connection it has with the
company or individual directors.
Company Response: due to the specific nature of the Company, it
has thus far used industry contacts to identify a list of suitable
candidates and undertakes a rigorous interview process;
(v) Provision 13: Non-executive directors have a prime role in
appointing and removing executive directors. Non-executive
directors should scrutinise and hold to account the performance of
management and individual executive directors against agreed
performance objectives. The chair should hold meetings with the
non-executive directors without the executive directors
present.
Provision 32: The board should establish a remuneration
committee of independent non-executive directors, with a minimum
membership of three, or in the case of smaller companies [i.e. not
in the FTSE 350], two.
Provision 33: The remuneration committee should have delegated
responsibility for determining the policy for executive director
remuneration and setting remuneration for the chair, executive
directors and senior management.
Provision 35: Where a remuneration consultant is appointed, this
should be the responsibility of the remuneration committee.
Provision 41: There should be a description of the work of the
remuneration committee in the annual report.
Company Response: the Company has no executive directors, senior
management or employees. It does not have a remuneration committee
given the small size of the exclusively non-executive and
independent board. Remuneration provision is set out in this
Directors' Report.
Board Evaluation
The Board is committed to ensuring that on an annual basis the
strengths of the Board are recognised and any weaknesses are
addressed. Each director has undertaken to engage with the
evaluation process and take appropriate action when development
needs have been identified. An external facilitation of the
performance evaluation is considered by the Chair of the Nomination
Committee on an annual basis.
For the financial year under review, the Nomination Committee
agreed that an external facilitation of the performance evaluation
required by provision 21 of the Code was not required and instead
the evaluation was performed by the Nomination Committee.
Directors were asked to complete individual questionnaires on
the performance of the Board and its committees on an anonymous
basis and the completed questionnaires were considered at a meeting
of the Nomination Committee. At the conclusion of its evaluation,
the Nomination Committee made minor suggestions for improvements
and also concluded that the Board generally operated well within
its compact size.
Board Responsibilities
The Board comprises four directors and their biographies appear
on page 16 demonstrating the wide range of skills and experience
they each bring to the Board. All the directors are non-executive
and independent, with Charles Wilkinson acting as Chair and Suzie
Procter acting as SID.
The Nomination Committee regularly reviews the balance,
knowledge and effectiveness of the Board, to identify if any
additional experience or skills are needed and to ensure that the
current directors have sufficient available time to undertake the
tasks required and remain independent. The directors are able and
encouraged to provide statements to the Board of their concerns and
ensure that any items of concern are recorded in the Board minutes.
When undertaking a search for a new director the Board would be
mindful of diversity and meritocracy.
The other significant commitments of the current Chair are
detailed in his biography on page 16. The Board was satisfied
during the year and remains satisfied that the Chair's other
commitments do not interfere with the day-to-day performance of his
duties to the Company and that he has the commitment and time to
make himself available at short notice should the need arise.
In accordance with the Articles the directors shall determine
the directors' fees payable provided that the aggregate amount of
such fees paid in respect of services rendered to the Company shall
not exceed GBP150,000 per annum. All directors receive an annual
fee and there are no share options or other performance related
benefits available to them. All directors are paid a fee of
GBP15,000 per annum and the Chair is paid an additional fee of
GBP5,000 per annum. The Chair of the AR Committee is paid an
additional GBP3,000 per annum. The terms and conditions of
appointment of non-executive directors are available for inspection
at the Company's registered office by prior arrangement with the
Secretary.
The Board usually meets in Guernsey at least four times per year
to consider the business and affairs of the Company, at which
meetings the directors review the Company's Assets and all other
important issues to ensure control is maintained. Due to travel
restrictions imposed as a result of COVID-19 the UK resident
directors have been unable to travel to Guernsey. However, the
Board continues to operate effectively utilising both telephone and
video conferencing to maintain contact with each other and with
their advisors and auditors. The directors hold a Dividend
Committee meeting each quarter in Guernsey to consider and, if
thought suitable, approve the payment of a dividend in accordance
with the Company's distribution policy.
Between these regular meetings the Board keeps in contact by
email and telephone as well as meeting to consider specific matters
of a transactional nature. Additionally the directors may hold
strategy meetings with its relevant advisors in attendance as
appropriate.
The directors are kept fully informed by the Asset Manager and
Secretary of all matters that are relevant to the business of the
Company and should be brought to the attention of the directors
and/or the Shareholders. All directors have direct access to the
Secretary who is responsible for ensuring that Board procedures are
followed and that there are effective information flows both within
the Board and between the committees and the Board.
The directors also have access to the advice and services of the
Asset Manager and the Corporate and Shareholder Adviser and may
also, in the furtherance of their duties, take independent
professional advice at the Company's expense.
During the year the number of full Board meetings and committee
meetings attended by the directors was as follows:
Director Board Meetings Audit and Risk Nomination Management Dividend
Committee Meetings Committee Engagement Committee
Meetings Committee Meetings***
meetings
Charles Wilkinson 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
--------------- -------------------- ----------- ------------ -------------
Geoffrey 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
Hall
--------------- -------------------- ----------- ------------ -------------
Suzie Procter 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
--------------- -------------------- ----------- ------------ -------------
Andreas Tautscher 5 of 5 6 of 6 3 of 3 1 of 1 4 of 4
--------------- -------------------- ----------- ------------ -------------
*** refer to page 29 for the composition and function of the
Dividend Committee.
Audit and Risk Committee
Mr Hall, Mr Tautscher and Miss Procter are all members of the AR
Committee, with Mr Hall acting as Chair. The AR Committee has
regard to the Guidance on AR Committee's published by the FRC in
September 2012 and as updated in April 2016. The AR Committee
examines the effectiveness of the Company's and its service
providers' internal control systems as appropriate, the annual and
half-yearly reports and financial statements, the auditor's
remuneration and engagement, as well as the auditor's independence
and any non-audit services provided by them.
The FRC published updated Ethical and Auditing Standards in
December 2019, which further restrict the provision of non-audit
services by audit firms to their clients. The previous list of
prohibited non-audit services list has been replaced with a short
list of permitted services. Auditors of PIES can now only provide
non-audit services which are closely linked to the audit itself or
are required by law or regulation. Also, whereas PIES were
previously limited to those entities incorporated in the EU, the
FRC now defines PIES as all issuers whose transferable securities
have been admitted to trading on a UK regulated market, which
includes the LSE but not AIM. The Crown Dependency rules were also
changed so that Market Traded Companies incorporated in the Crown
Dependencies are also included in this requirement.
The AR Committee considers the nature, scope and results of the
auditor's work and reviews it annually prior to providing a
recommendation to the Board on the re-appointment or removal of the
auditor. When evaluating the external auditor the AR Committee has
regard to a variety of criteria including industry experience,
independence, reasonableness of audit plan, ability to deliver
constructive criticism, effectiveness of communication with Board
and the Company's service providers, quality control procedures,
effectiveness of audit process and added value beyond assurance in
audit opinion.
Auditor independence is maintained through limiting non-audit
services to specific audit-related work that falls within defined
categories. All engagements with the auditor are subject to
pre-approval from the AR Committee and fully disclosed within the
annual financial report for the relevant period. A new lead audit
partner is appointed every five years and the AR Committee ensures
the auditor has appropriate internal mechanisms in place to ensure
its independence.
The AR Committee usually meets in Guernsey at least twice per
year, shortly before the Board meets to consider the Company's
half-yearly and annual financial reports, and reports to the Board
with its deliberations and recommendations and also holds annual
planning and final meetings with the auditor. In addition the Board
also meets during the audit process with the auditors to discuss
issues relating to the residual values of the Assets. The AR
Committee operates within clearly defined terms of reference based
on the Institute of Chartered Secretaries and Administrators
recommended terms and provides a forum through which the Company's
external auditor reports to the Board. The AR Committee can request
information from the Company's service providers with the majority
of information being directly sourced from the Asset Manager, the
Secretary and Administrator and the external auditor. The terms of
reference of the AR Committee are available on the Company's
website and on request from the Secretary.
Each year the Board examines the AR Committee's performance and
effectiveness, and ensures that its tasks and processes remain
appropriate. Key areas covered included the clarity of the AR
Committee's role and responsibilities, the balance of skills among
its members and the effectiveness of reporting its work to the
Board. The Board is satisfied that all members of the AR Committee
have relevant financial experience and knowledge and ensure that
such knowledge remains up to date. Overall the Board considers that
the AR Committee has the right composition in terms of expertise
and has effectively undertaken its activities and reported them to
the Board during the year under review.
During the financial year the AR Committee met six times. The AR
Committee considered the annual financial report for the year ended
31 March 2020 and the half-yearly financial report for the period
ended 30 September 2020. They met in January 2021, with the
external auditor in attendance, to approve the 2021 audit plan. The
AR Committee also undertook a review of the Company's auditor
during the year.
Dividend Committee
The Dividend Committee consists of any one or more director, who
has been given full power and authority to consider and, if thought
suitable, declare and approve the payment of a dividend in
accordance with the Company's distribution policy, provided all
directors had been provided with prior notice of the proposal to
declare each dividend and no director had raised any objection to
the declaration of each dividend.
Nomination Committee
The Nomination Committee consists of all directors of the
Company, with Mr Wilkinson acting as Chair of the committee, except
when the Nomination Committee considers any matter in relation to
the chairmanship of the Company, in which case an alternative chair
would be appointed.
The functions of the Nomination Committee include to regularly
review the structure, size and composition (including the skills,
knowledge, experience, diversity and how effectively members work
together to achieve objectives) of the Board and make
recommendations to the Board with regard to any changes, and to
perform a formal and rigorous performance evaluation of the Board,
its committees, the chair and individual directors, including the
consideration of having a regular externally facilitated Board
evaluation .
During the financial year the Nomination Committee met twice, to
consider the appointment of a SID and to undertake the annual
performance evaluation of the Board and its committees.
Management Engagement Committee
The Management Engagement Committee was established on 15
October 2020 and consists of all directors of the Company, with
Andreas Tautscher acting as Chair. The Management Engagement
Committee meets at least once a year and the principal duties of
the Management Engagement Committee are to review the terms of the
agreements between the Company and its key service providers to
ensure that they are competitive, fair and reasonable for
shareholders, to review and make recommendations on any proposed
amendment or material breach of those agreements and to monitor and
evaluate the performance of the key service providers including the
on-going suitability of the key service providers to provide advice
to the Company .
During the financial year the Management Engagement Committee
met once, to perform a review of the Company's service providers
.
Internal Control and Financial Reporting
The Board is responsible for the Company's system of internal
control and for reviewing its effectiveness. The Board confirms
that there is an on-going process for identifying, evaluating and
monitoring the significant risks faced by the Company.
The internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed. Accordingly,
the internal control systems are designed to manage rather than
eliminate the risk of failure to achieve business objectives and by
their nature can only provide reasonable and not absolute assurance
against misstatement and loss.
The Board on an annual basis conducts a full review of the
Company's risk management systems including consideration of a risk
matrix which covers various areas of risk including corporate
strategy, accuracy of published information, compliance with laws
and regulations, relationships with service providers and business
activities.
Asset management services are provided to the Company by Doric.
Corporate and shareholder advisory services are provided to the
Company by Nimrod. Administration and Secretarial duties for the
Company are performed by JTC.
The Board clearly defines the duties and responsibilities of
their agents and advisors. The appointment of agents and advisers
is conducted by the Board after consideration of the quality of the
parties involved and the Board monitors their on-going performance
and contractual arrangements. The Board also specifies which
matters are reserved for a decision by the Board and which matters
may be delegated to its agents and advisers.
Management of Conflicts of Interest
The Company has adopted a formal conflict of interest policy and
is committed to ensuring that all directors and service providers
facilitate the Company conducting its business in a manner that is
consistent with its reputation, conducive to maintaining high
standard of integrity in all its business dealings, in the best
interests of the Company's Shareholders.
The Board considers the directors' conflicts of interest at each
Board meeting by reviewing a schedule of each director's other
directorships and other interests held. Each director is required
to notify the Secretary of any potential, or actual, conflict
situations that would need to be considered by the Board.
No director has a service contract with the Company, although
directors are issued with letters of appointment nor did any
director have any interest in contracts with the Company during the
financial year under review, or subsequently.
Anti Bribery Policy
The directors have undertaken to operate the business in an
honest and ethical manner and accordingly take a zero-tolerance
approach to bribery and corruption. The key components of this
approach are implemented as follows:
-- The Board is committed to acting professionally, fairly and
with integrity in all its business dealing and relationships.
-- The Company has implemented and enforces effective procedures to counter bribery.
-- The Company requires all its service providers and advisors
to adopt equivalent or similar principles.
Dialogue with Shareholders
All holders of Shares in the Company have the right to receive
notice of, and attend, the general meetings of the Company, during
which members of the Board will be available to discuss issues
affecting the Company.
The primary responsibility for Shareholder relations lies with
the Company's Corporate and Shareholder Adviser. The Corporate and
Shareholder Adviser regularly meets with Shareholders to discuss
the Company and seek feedback. The views of Shareholders are
discussed by the Board at every Board meeting, and action would be
taken to address any shareholder concerns. The Company provides
regular updates to Shareholders through the annual and half-yearly
financial reports and quarterly factsheets.
In addition the directors are available to enter into dialogue
with Shareholders and the Chair is willing to meet Shareholders as
the Company believes such communication to be important. The
Company's directors can be contacted at the Company's registered
office or via the Secretary .
Stakeholders and Section 172
The Code requires that the Company should understand the views
of the Company's key stakeholders and describe in the annual report
how their interests and the matters set out in section 172 of the
UK's Companies Act 2006 have been considered in Board discussions
and decision-making. Section 172 is not strictly applicable as this
is a Guernsey company. However its application is being considered
as part of the Code.
The Company has no employees and all of the directors are
non-executive, so the Board considers that its key stakeholders are
its Shareholders, its service providers, society, the government
and regulators.
The Board's engagement with Shareholders is described in the
"Dialogue with Shareholders" section above . All Shareholders are
treated equally and no Shareholder receives preferential treatment.
When making decisions of relevance to Shareholders, the Board
considers first and foremost the likely consequences of their
decisions in light of their duty to act in the best interests of
the Company. The Board also considers what is likely to be in the
best interests of Shareholders as a whole, but does not consider
individual Shareholders' specific circumstances or desires when
making its decisions.
In addition to the regular reporting provided by key service
providers, the Management Engagement Committee undertakes a review
of the performance of these key service providers on an annual
basis. The services provided by the key third party service
providers are critical to the ongoing operational performance of
the Company. The Board believes that fostering constructive and
collaborative relationships with the Company's service providers
will assist in their promotion of the success of the Company for
the benefit of all Shareholders.
As described in detail in the Company's viability statement, the
Board considers the prospects of the Company for at least the next
year whenever it considers the Company's sustainability. All
strategic decisions are therefore taken with the success of the
Company in mind and the Board would take external advice whenever
it considered that such would be beneficial to its decision making
process, primarily from its retained service providers (including
legal counsel), but also from other external consultants.
The Board recognises that responsible investment and the
associated ESG considerations can have a significant impact on
investment activity in terms of raising funds, identifying
investment opportunities and long-term value creation for
Shareholders. Please see more information regarding ESG in the
report on pages 33 to 36.
The Board ascribes to the highest standards of business conduct
and has policies in place to ensure compliance with all applicable
laws and regulations. In addition to the monitoring of the
Company's compliance with its own obligations, the Board also
monitors compliance by its service providers with their own
obligations. The Board encourages openness and transparency and
promotes proactive compliance with new regulation.
Statement of Directors' Responsibilities
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable Guernsey
law and regulations. Under the Law the directors are required to
prepare financial statements for each financial year. The directors
have chosen to prepare the Company's financial statements in
accordance with IFRS.
Under the Law the directors must not approve the accounts unless
they are satisfied that they give a true and fair view of the state
of affairs of the Company and of the profit or loss of the Company
for that period.
In preparing these financial statements, International
Accounting Standard 1 requires that directors:
-- properly select and apply accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the entity's financial position and financial
performance; and
-- make an assessment of the Company's ability to continue as a going concern.
The directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the Law. They are also
responsible for safeguarding the assets of the Company and for
taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation in Guernsey governing the
preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
Disclosure of Information to the Auditor
The directors who held office at the date of approval of this
Directors' Report confirm in accordance with the provisions of
Section 249 of the Law that, so far as they are each aware, there
is no relevant audit information of which the Company's auditor is
unaware; and each director has taken all the steps that he ought to
have taken as a director to make himself aware of any relevant
audit information and to establish that the Company's auditor is
aware of that information.
Auditor
During the period the AR Committee undertook an audit tender
process as an exercise of good corporate governance procedures, on
the basis that Deloitte have been in situ as Auditors of the
Company for 9 years. As a result, it is expected that Deloitte will
resign and Grant Thornton Limited will be appointed as external
auditor by the Board, both with effect from 2 August 2021. A
resolution proposing Grant Thornton Limited's reappointment will be
submitted at the Company's forthcoming annual general meeting to be
held pursuant to section 199 of the Law.
Charles Wilkinson Geoffrey Hall
Chair Director
Signed on behalf of the Board
on 2 August 2021
ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT
The Board recognises that responsible investment and the
associated ESG considerations can have a significant impact on
investment activity in terms of raising funds, identifying
investment opportunities and long-term value creation for
Shareholders. This report sets out our policy and approach to
ensuring that the level of engagement on ESG matters is
commensurate to the size, nature and complexity of the
business.
This policy seeks to address ESG matters on two levels; firstly,
with regard to the Company itself and secondly, in relation to the
Asset which the Company owns. The direct and practical management
of the Company seeks to uphold ESG standards where possible and
applicable. This is greatly influenced by the nature of the
Company's activities and the legal structure of the associated
Lease.
The Company
The Company is a self-managed Guernsey company incorporated on 8
October 2010. Its Shares were admitted to trading on the SFS on 13
December 2010.
The Company is under the control of its Board on behalf of
Shareholders. All directors are independent and non-executive. The
Board are responsible for reviewing the business affairs of the
Company in accordance with the Articles and have overall
responsibility for the Company's activities including all business
decisions, review of performance and authorisation of
distributions.
The Company has delegated the following activities to its
appointed service providers:
-- Asset Management - Doric
-- Corporate and Shareholder Adviser - Nimrod
-- Secretary and Administrator - JTC
-- Registrar - JTC Registrars Limited
The Company has no executive directors or employees and no
physical office premises. The Company's business is carried out in
a series of meetings held in the offices of its administrator JTC,
in Guernsey, the Company's place of incorporation.
Subject to any travel restrictions imposed, the directors are
required to travel in the fulfilment of their duties. Where
circumstances allow, travel is kept to a minimum. The directors are
required to travel to Guernsey on at least a quarterly basis for
Board and other committee meetings, and to the UK to visit
Shareholders and service providers as and when required. Regular
dialogue with the Asset's Lessee is maintained via the Asset
Manager.
The Company consequently has a limited physical footprint and
therefore its environmental impact is considered to be low.
The Modern Slavery Act
Due to the nature of the Company's business, being a company
that does not offer goods or services to customers, the Board
considers there are no relevant disclosures with regard to modern
slavery in relation to the Company's own operations. The Board
considers the Company's supply chains, dealing predominantly with
professional advisers and service providers in the financial
services industry, to be low risk in this regard.
The Asset
The principal activity of the Company is to acquire, lease and
then sell a single aircraft. The Company owns one Airbus A380-861
aircraft which is leased for twelve years to the Lessee, the
national carrier owned by The Investment Corporation of Dubai based
in Dubai, UAE.
The Company's own operational influence in the fields of climate
change, air quality, and resource efficiency is minimal. The nature
of the Lease with the Lessee means that control over the usage of
the Asset rests with the Lessee. The Company has leased the Asset
for a term of 12 years, with fixed lease rentals for the duration,
to the Lessee. The Lessee bears all costs (including for
maintenance, repairs and insurance) relating to the Aircraft during
the lifetime of the Lease. This would include any modifications or
modernisations related to ESG requirements as mandated by
regulatory agencies. However, in all other respects, the influence
of the Company over the Lessee with regard to voluntary ESG
concerns is limited due to existing quiet enjoyment arrangements
between the Company and the Lessee.
The Airbus A380 is the world's largest commercial passenger
aircraft. It is the first and only aircraft with two full-length
passenger decks, giving it a maximum capacity of up to 853
passengers. In a typical three-class configuration (First, Business
and Economy Class), the Airbus A380 has capacity for approximately
525 passengers. Additionally, developments with respect to the
aircraft's aerodynamics, control elements and flight systems,
coupled with the use of advanced, lightweight composite materials
make the A380 an attractive and efficient aircraft. In comparison
with other modern long-range passenger aircraft of the same
category (the so-called Very Large Aircraft segment), the Airbus
A380 consumes less fuel per passenger, using approx. three litres
of kerosene per 100 passenger kilometers, when equipped with Engine
Alliance engines. Furthermore, the A380 offers an efficient way to
capture traffic at the most concentrated airports and times by
giving airlines the ability to consolidate routes, thereby
increasing seat capacity while creating economies of scale.
The most critical environmental issue related to aircraft
operations is GHG emissions generated from fossil energy
consumption. Air transportation is one of the most energy and
carbon dioxide intensive modes of transport, whether measured per
passenger kilometer or per hour in transit. According to Oxford
University, the global aviation industry (including domestic and
international; passenger and freight) accounts for:
-- 1.9% of GHG emissions (e.g. all greenhouse gases, not only CO(2) );
-- 2.5% of carbon emissions; and
-- 3.5% of 'effective radiative forcing' - a measure of impact on global warming.
The first figure refers to 2016, while the latter two refer to
2018, each being the latest year for which such data are
available.
The Aviation Industry
Despite aviation's important role in local and global economic
development, the aviation industry faces the challenge of meeting
long term strong growth in passenger demand while simultaneously
reducing its environmental impacts. In addition to GHG emissions,
these environmental impacts could also include noise and nuisance,
as well as water pollution (due to aircraft de-icing, cleaning, and
other chemical-heavy aircraft operations).
To address these growing environmental concerns, the
cross-industry ATAG developed the 'Wayward 2025' action plan in
line with the Paris Agreement on climate change. The blueprint
builds on IATA's 2009 commitment to (1) increase fuel efficiency by
1.5% every year between 2010-20, (2) to cap carbon emissions
(carbon neutral growth) from 2020, and (3) to achieve the 50%
emissions reduction by the middle of the century, as the first two
goals have already been accomplished. Annual fuel efficiency gains
have exceeded expectations with annual improvements greater than
2%. The mechanism for ensuring carbon neutral growth, known as
CORSIA, started as a pilot scheme in 2021 with approx. 100
countries participating and the remaining scheduled to join by
2027.
In pursuit of the final goal, Wayward 2050 has identified three
key technological developments to accelerate the reduction of
carbon emissions:
1. Improved aircraft and engine designs for lighter, more efficient aircraft;
2. Hydrogen and electric powered aircraft; and
3. SAF.
The analysis performed for Wayward 2050 revealed that SAF will
play a key role, driving between 50% and 75% of the emissions'
reductions. SAFs, such as drop-in power fuels like biofuels that
can be used in today's aircraft and engines without modification,
are already commercially available and are expected to increase in
prominence once initial costs can be reduced through scale.
Evolutionary concepts, such as the second-generation geared turbo
fan engine, could become widely commercially available in the
medium-term. Revolutionary concepts such as hydrogen and electric
powered aircraft, represent the greatest potential improvements,
but will most likely not be commercially available until the 2050s,
based on current forecasts.
As these technological developments progress, the aviation
industry is taking additional measures to curb its environmental
impact, while maintaining its commitment to local and global
economic development. For example, alongside CORSIA, the aviation
industry is able to participate in other carbon dioxide emissions
trading markets, such as the EU ETS.
Furthermore, a number of countries currently levy passenger
taxes on air tickets over and above infrastructure charges and
there are a number of proposals for additional environmental taxes
to be imposed on the aviation industry. However, as IATA notes, the
income generated from an environmental tax is usually seen as
general revenue by governments, thus it can be used to fund any
variety of public sector programs and initiatives. As such, IATA
takes the position that, while the overall goal of an environmental
tax is laudable, it has distortionary effects on jobs and the
economy, while at the same time not effectively incentivising the
development or use of newer and greener technology. The effects of
any newly introduced environmental taxes on the aviation industry
will have to be monitored. The aviation industry plays a critical
role in local and global economic development, contributing 4.1% to
global gross GDP and supporting 87.7 million jobs worldwide.
The Wayward 2050 plan can be found here:
https://aviationbenefits.org/media/167187/w2050_full.pdf
Further environmental information can be found on the IATA
website: https://www.iata.org/en/policy/environment/ .
ICAO have used the United Nations' SDGs as a basis to identify
the contributions the aviation industry is making to sustainable
development. For further information and the full working paper on
aviation's contributions towards the United Nations' 2030 agenda
for sustainable development from ICAO's 40(th) session please refer
to the ICAO website:
https://www.icao.int/Meetings/A40/Documents/WP/wp_189_en.pdf
.
Concerning the role of aircraft in sustainable development,
aircraft assets are likely to contribute to at least five of the
SDG. Specifically, airlines are able to utilize aircraft in a
manner consistent with the achievement of the following
targets:
1. SDG 5: Aviation is working to achieve gender balance across
the sector. In Europe, aviation is the most gender-balanced of all
transport modes with 41 per cent female employees. More work is
still needed to encourage balance in technical and executive
roles;
2. SDG 8.1: Devise and implement policies to promote sustainable
tourism that creates jobs and promotes local culture and
products;
3. SDG 9.1: Develop quality, reliable, sustainable and resilient
infrastructure, including regional and trans-border infrastructure,
to support economic development and human wellbeing, with a focus
on affordable and equitable access for all;
4. SDG 12.2: Achieve sustainable management and efficient use of
natural resources productions; and
5. SDG 13: Invest in the transition to net-zero carbon dioxide
energy, energy efficiency and the reduction of GHG emissions from
transport operations.
Detailed information on the SDGs can be found on the United
Nations website: https://sustainabledevelopment.un.org/ .
Emirates, the Lessee, is committed to efforts to reduce resource
consumption while also investing in wildlife conservation and
protection. This includes participation in CORSIA as well as
internal initiatives.
For further information on Emirates' environmental policy and
initiatives, please visit the Emirates website where annual
environmental reports are also available:
https://www.emirates.com/english/about-us/our-planet/
In the context of the Asset and the associated Lease, the Board
is committed to responsible decision making throughout the
lifecycle of the Company. The Board is in continuous dialogue with
its service providers and regularly reviews processes to guarantee
transparency and accountability. The Board will continue to monitor
the sustainability efforts of the industry and the Lessee and keep
Shareholders abreast of developments.
AUDIT AND RISK COMMITTEE REPORT
Membership
Geoffrey Hall - Chair of the AR Committee
Andreas Tautscher - Non-executive Director
Suzie Procter - SID
Key Objective
The provision of effective governance over (i) the
appropriateness of the Company's financial reporting including the
adequacy of related disclosures, (ii) the performance of the
Company's external auditor, (iii) monitoring of the systems of
internal controls operated by the Company and (iv) the Company's
principal service providers and the management of the Company's
regulatory compliance activities.
Responsibilities
The key duties of the AR Committee are as follows:
-- reviewing the Company's financial results announcements and
financial statements and monitoring compliance with relevant
statutory and listing requirements;
-- reporting to the Board on the appropriateness of the
Company's accounting policies and practices including critical
accounting policies and practices;
-- advising the Board on whether the annual report and accounts,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Company's
position, performance, business model and strategy;
-- overseeing the relationship with the external auditor and
reviewing the effectiveness of the external audit process; and
-- monitoring the systems of internal controls operated by the
Company and by the Company's principal service providers.
AR Committee Meetings
The AR Committee usually meets in Guernsey at least twice a
year. The AR Committee reports to the Board as part of a separate
agenda item, on its activities and on matters of particular
relevance to the Board in the conduct of its work. During the
financial year under review the AR Committee formally reported to
the Board on three occasions.
Main Activities of the AR Committee during the Financial
Year
The AR Committee assisted the Board in carrying out its
responsibilities in relation to financial reporting requirements,
compliance and the assessment of internal controls. The AR
Committee also managed the Company's relationship with the external
auditor and undertook an audit tender process .
Fair, Balanced and Understandable
In order to comply with the Code, the Board has requested that
the AR Committee advises them on whether it believes the annual
financial report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Company's performance, business model
and strategy.
The AR Committee engaged with the Company's auditor and
Administrator in order to ensure that the financial statements were
fair, balanced and understandable.
Financial Reporting and Significant Issues
The AR Committee's primary role in relation to financial
reporting is to review, with its service providers and the external
auditor, the appropriateness of the half-year and annual financial
statements, the significant financial reporting issues and
accounting policies and disclosures in the financial statements.
The AR Committee has considered the key risks identified as being
significant to these accounts and the most appropriate treatment
and disclosure of any new significant issues identified during the
audit and half-year reviews as well as any recommendations or
observations made by the external auditor, Deloitte. To aid its
review the AR Committee considered reports prepared by external
service providers, including Doric and Nimrod, and reports from
Deloitte on the outcome of their annual audit. The significant
issues considered by the AR Committee in relation to the 2021
accounts and how these were addressed are detailed below:
Significant issues for the How the AR Committee addressed these
year under review significant issues
Residual value of aircraft
asset The Company has engaged three internationally
recognised expert appraisers to provide
The non-current asset of the Company with third party consultancy
the Company comprises a valuation services. In the absence of
single Airbus A380 aircraft. sales data for similar used assets, appraisers
An annual review is required are heavily reliant on databases containing
of the residual value of historical data points of aircraft sales
the Asset as per IAS 16, relating to large commercial aircraft.
which defines residual value Interpretation of historical data is
as "the estimated amount the basis for the current market value
that an entity would currently and provides, together with the expected
obtain from disposal of developments in the future, the foundation
the asset, after deducting for their opinions on future values.
the estimated costs of disposal, Furthermore, the appraisers' valuations
if the asset were already take into account specific technical
of an age and in the condition and economic developments as well as
expected at the end of its general future trends in the aviation
useful life." industry and the macro-economic outlook.
In the aftermath of Airbus' February
2019 decision to discontinue the A380
production in 2021, a number of A380
operators disclosed plans to withdraw
at least parts of their A380 fleets earlier
than originally anticipated. Furthermore,
it became obvious that A380s returned
following the expiration of operating
lease agreements could not be placed
with a new operator within a reasonable
period of time and owners were forced
to explore alternative scenarios for
revenue generation like engine lease.
This also includes part-out activities
for the first few A380s returned from
Singapore Airlines.
The ongoing spread of COVID-19 and comprehensive
travel restrictions around the world
came along with an unprecedented drop
in air travel. About a year into the
Pandemic, around 90% of all A380s worldwide
were still on the ground in the first
quarter of 2021. The financial difficulties
most of the airlines currently experience,
result in various measures to weather
the consequences of the Pandemic, as
many expect the recovery to pre-Pandemic
passenger flows take much longer than
in previous situations, where demand
was negatively affected, like 9/11.
Due to the A380-specific developments
over the last few years and the generally
dimmed market sentiment in the aviation
sector since the COVID-19 outbreak, which
is not over yet, there is an increasing
risk that the underlying assumptions
of the Base Value concept might not be
met at the time when the Lease expires.
For this reason the Asset Manager recommended
to continue with making use of a more
conservative approach by deploying Future
Soft Values instead of Base Values. Soft
Values are more conservative, also applicable
under "abnormal conditions" and do not
necessarily require a balanced market
as the Base Value concept does.
The Company's estimation technique is
to make reference to the most recently
produced forecast soft value (excluding
inflation), not an estimate of the amount
that would currently be achieved and
therefore could be different, and so
this is not a direct application of the
IAS 16 definition. This approach has
been taken because current market values
in today's prices for comparable twelve
year old A380 were not available at the
reporting date.
A decrease in USD terms in the residual
value of the aircraft from the prior
year has resulted in an adjustment made
to depreciation in the current year,
details of which have been disclosed
in note 10.
As updated valuations of the Asset as
at the financial year end were commissioned
and received from third party professional
valuers and analysed by the Asset Manager
and the directors, the Committee believes
that those valuations are appropriate
for use in preparing the financial statements.
Therefore, the average residual soft
value excluding inflation used in the
accounts are based on these appraisals.
Upon review of the advice they have received
from Doric and the appraisers, the AR
Committee is of the opinion that the
latest estimate of the residual soft
values excluding inflation of the Asset
is a reasonable approximation of the
residual value of the Aircraft within
the IAS 16 definition.
Residual values remain exposed to estimation
uncertainty. This is disclosed in note
3 and has been highlighted by the auditor
in their key observations section of
the valuation and ownership of aircraft
key audit matter.
---------------------------------------------------
Significant issues for the How the Committee addressed these significant
year under review issues
---------------------------------------------------
Recording foreign exchange In assessing foreign exchange, the AR
gains/losses Committee has considered the issue at
length and are of the opinion that, on
IFRS require that certain an on-going basis and assuming the lease
transactions denominated and loan payments are made as anticipated,
in currencies other than such exchange differences do not reflect
the presentation currency the commercial substance of the situation
(including, most importantly, in the sense that the key transactions
the cost of the Asset) be denominated in US dollars are in fact
translated into presentation closely matched. Rental income received
currency at the exchange in US dollars is used to pay loan repayments
rate ruling transaction due which are likewise denominated in
date whilst monetary balances US dollars. US dollar lease rentals and
(principally the outstanding loan repayments are fixed at the outset
borrowings) are translated of the Company's life and are very similar
at the rate prevailing on in amount and timing.
the reporting date. The
resultant figures sometimes The AR Committee concluded that the matching
show very large mismatches of the lease rentals to settle loan repayments
which are reported as unrealised therefore mitigates risks of foreign
foreign exchange differences. exchange fluctuations.
During the year under review The AR Committee has carefully considered
the Company recorded a significant the disclosure in note 19(b) to the financial
foreign exchange rate profit statements to ensure that the reality
due to the appreciation of the Company's foreign exchange risk
of Sterling against US dollars exposure is properly explained.
and the consequent decrease
in the Sterling value of
the US dollar denominated
debt.
---------------------------------------------------
Significant issues for the How the Committee addressed these significant
year under review issues
---------------------------------------------------
Going concern risk The AR Committee received quarterly reports
from Doric during the year which comment
Emirates are the sole lessee on the performance of Emirates.
of the Asset. Should Emirates
default on the rental payments, The Lessee's economic performance in
it will result in the Company its 2020-21 financial year, which ended
failing to service debt on 31 March 2021, was heavily affected
and it is unlikely the Company by the Pandemic. After scheduled passenger
will be able to meet its operations were suspended for nearly
targeted dividends or, in eight weeks at the beginning of the Period,
the case of ongoing default, the company's business environment remained
continue as a going concern. very challenging for the rest of the
year. Finally, Emirates recorded its
There is material uncertainity first net loss in over 30 years, amounting
related to events or conditions to 5.5 billion USD. However, the Lessee
that may cast significant was able to generate a positive EBTIDA
doubt on the entity's ability at 1.3 billion USD and 1.1 billion USD
to continue as a going concern positive cash flow from operating activities.
and, therefore, that it Early into the Pandemic, Emirates has
may be unable to realize been quick to ramp up its existing cargo
its assets and discharge operations by utilizing its fleet of
its liabilities in the normal Boeing 777-300ER passenger aircraft.
course of business. Some of them were even converted into
'mini-freighters' and joined by A380
'mini-freighters' on select cargo charter
operations. In total, about a third of
Emirates' passenger aircraft was used
for cargo operations.
In response to the crisis, Emirates took
a number of actions to reduce costs,
including reducing its workforce by 32.0
%, the restructuring of certain financial
obligations, renegotiation of contracts
and consolidation of its operations.
With the Pandemic not over yet, the management
of the airline is mindful that the "recovery
will be patchy", but sees the fundamental
ingredients of its success to date unchanged.
Notwithstanding the challenging conditions,
Emirates was able to raise 4 billion
USD financing for aircraft and general
corporate purposes during the 2020-21
financial year and received committed
offers to finance two aircraft deliveries
due in 2021-22. Emirates ended the financial
year on 31 March 31, 2021 with 4 billion
USD in cash assets and "continues to
tap the financial market for further
liquidity to provide a cushion for the
potential impact of COVID-19 on the business
cash flows in the near term", according
to its Chairman and CEO HH Sheikh Ahmed
bin Saeed Al Maktoum.
The management of the airline came to
the conclusion that the company is a
going concern. The auditors PwC did not
raise a material uncertainty on going
concern in its unqualified auditor's
report, which is dated 6 May 2021.
During the 2020-21 financial year, Emirates
has received capital injections from
its ultimate shareholder in the combined
amount of 3.1 billion USD and according
Sheikh Ahmed "the Government of Dubai
is ... committed to supporting the Group
[Emirates Airline and dnata] through
its recovery". In its annual financial
report the airline stated "it remains
confident to meet our financial commitments
as they fall due in the coming year and
beyond through proactive working capital
management and utilization of available
credit lines and facilities".
By the end of March 2021, Emirates had
restored services to over 120 passenger
and cargo destinations worldwide, reaching
42% of its total capacity compared to
the previous year. By the end of July
2021, the carrier expects to operate
flights to 124 destinations, which would
be close to 90 % of its pre-pandemic
network.
The Asset Manager is not aware of a formal
request addressed to the Company for
a lease deferral or any other efforts
that would result in the restructuring
of the existing transaction and could
potentially have an impact on the committed
future lease rental receipts.
Emirates is owned by the Investment Corporation
of Dubai, a state-owned holding company
that can be characterized as a sovereign
wealth fund owned by the Government of
Dubai. It is neither listed nor carry
its bond issuances an issuer rating.
However, Emirates' senior unsecured bonds
with maturities in 2023, 2025 and 2028
are trading and the markets' pricing
for such instruments provide proxies
for the credit risk of the lessee. As
the operating lease agreements between
Emirates and the Company include a hell
or highwater clause, the lease rental
stream and any other contractual payment
primarily depends to Emirates' ability
to meet its financial obligations whenever
they fall due. In mid-July 2020, Emirates'
bonds are trading at around 96 cents
(maturities in 2023 and 2025) and 92
cents (2028 maturity), representing USD
running yields from approximately 4.1%
to 4.9%. This level of yields certainly
does not appear to indicate any significant
financial stress to the issuer. Another
readily available indicator for the lessee's
financial health are CDS's on Emirates
bonds. The quote informs about the annual
cost in basis points of insuring against
an Emirates credit event for a five year
period. In mid-July 2020 the annual insurance
premium on one USD face value in Emirates
bonds is 353bps, which is elevated versus
the longer term average of around 150bps.
However, taking into consideration that
aviation is one of the hardest hit sectors
by COVID-19, the CDS's still indicates
that the market perceives Emirates as
a trustworthy company, which is very
likely able to meet its obligations in
the next five years.
The AR Committee concluded that it would
continue to receive regular updates from
Doric on the performance of Emirates
and would continue to monitor Emirates'
overall performance .
The AR Committee carefully considered
the disclosure in note 19(c) to the financial
statements to ensure that this concentration
of credit risk is properly reflected.
---------------------------------------------------
Consideration of any triggers The AR Committee has considered the issue
for impairment at length and accordingly an impairment
review has been undertaken as at 31 March
IAS 36 Impairment of Assets 2021. Refer to note 3 for further detail
requires that a review for on the factors triggering the review
impairment be carried out and the sensitivity analysis performed
by the Company when there on the discount rates and residual value
is an indication of impairment inputs. As a result of the current year
of an asset and if events review, an impairment loss of GBP6,316,569
or changes in circumstances was booked in the accounts as disclosed
indicate that the carrying in note 3.
amount of an asset may not
be recoverable. The review Contributing factors, which triggered
will compare the carrying the AR Committee's decision to perform
amount of the asset with an impairment review, included the Pandemic
its recoverable amount, and the global travel restrictions leading
which is the higher of its to a temporary halt of A380 operations
value if sold (if known) worldwide. It was also necessary as the
and its VIU. Company continued to adhere to the concept
of Future Soft Values for measuring the
residual value of the aircraft.
---------------------------------------------------
Global Pandemic Risk The COVID-19 pandemic continues with
rising numbers of infections in many
The emergence of a global countries around the world. Restrictions
Pandemic may have a profound on people socialising and travelling
and negative impact on the have begun to ease in some countries
operations and performance but remain in a significant number of
of the Company and may directly others and this continues to have a significant
or indirectly affect some effect on many industries and in particular
of the other risks mentioned the airline industry.
in this table.
Due to restriction on travel imposed
by many countries, a significant share
of passenger aircraft remain grounded.
The consequent lack of income for airlines
may cause bankruptcy and, in a worse
case, repossession of aircraft which
would need to be stored pending remarketing
when restrictions are eased.
The Board and its key service providers
have all acted to the best of their abilities
to protect the welfare of the various
teams involved in the affairs of the
Company to ensure operations are maintained
to the extent possible and to protect
and support the assets of the Company
for as long as is required.
The impact of COVID-19 on financial reporting
has been considered in respect of other
risks such as residual value, impairment
and going concern. More information of
COVID-19 is set out in the Chair's Statement
on pages 7 to 10 and the Asset Manager
Report on pages 11 to 15.
---------------------------------------------------
We note that the auditor also considers the recognition of
rental income within their key audit matters. This item has been
considered by the AR Committee in the current year, but, as there
have been no changes in respect of this risk, it has not been a
primary area of focus of the AR Committee in the current year.
Going Concern
The directors in consultation with the Asset Manager are
monitoring the continuous effect of the Pandemic generally on the
aviation industry and specifically on the Company's aircraft value
and the financial wellbeing of its Lessee both now and in the
future. The Pandemic continues to have a pervasive impact on the
global economy and it remains possible that the Company's future
performance could be impacted in this prolonged period of
uncertainty. In many jurisdictions restrictions on the ability of
people to travel still adversely affect the airline sector, and by
extension the aircraft leasing sector. The risk therefore remains
that some airlines may not be able to pay rent as it falls due. The
impact of the Pandemic on the aviation industry has been
significant, with a large part of the global passenger aircraft
fleet temporarily grounded. These factors, together with wider
economic uncertainty and disruption, have had an adverse impact on
the future value of the Aircraft owned by the Company, and could
also negatively impact the sale, re-lease or other disposition of
the Aircraft.
Given the prolonged impact of the Pandemic, increased lessee
counterparty credit risk remains in existence and there could be
requests for lease rental deferrals. Reduced rents receivable under
the Lease may not be sufficient to meet the fixed loan interest and
regular repayments of debt scheduled during the life of the Loan
and may not provide surplus income to pay for the Company's
expenses and permit the declaration of dividends.
The option to remarket the Aircraft following a potential event
of default by the Lessee has not been taken into account. The
period of time necessary to successfully complete such a process is
beyond the twelve months forecasting horizon of the going concern
considerations. This applies in particular in times of COVID-19, as
various restrictions are still in place to contain the
Pandemic.
Based on current information the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future, although the risk
to this is clearly higher compared to a pre-COVID-19
environment.
The directors have considered Emirates' ability to continue
paying the Lease rentals over the next 12 months and are satisfied
that the Company can meet its liabilities as they fall due over
this period. Further detail regarding the assumptions adopted when
forming this conclusion can be found in the Viability Statement
below. The directors consider that the going concern basis of
accounting remains appropriate however note a material uncertainty
below.
Although the Company does not have a fixed life, the articles of
incorporation require that the directors convene a general meeting
of the Company six months before the end of the term of the Lease
where an ordinary resolution will be proposed that the Company
proceed to an orderly wind-up at the end of the term of the Lease
(the "Liquidation Resolution") and the directors will consider (and
if necessary, propose to Shareholders) alternatives for the future
of the Company, including re-leasing the Asset, or selling the
Asset and reinvesting the capital received from the sale of the
Asset in another aircraft.
The outcome of the Liquidation Resolution will be known at a
point within the 12 month period commencing on the date when the
Board approved the Annual Financial Report ("AFR"), which is due to
take place in June 2022. This is six months before the end of the
lease term in December 2022 and creates a material uncertainty that
may cast significant doubt on the Company's ability to continue as
a going concern. In this event, the Company would proceed with an
orderly wind-up after the lease-end. Such a determination would
mean that the Company, though solvent and able as before to meet
its liabilities as they fall due, would no longer meet the
definition of a going concern i.e. an entity which will continue
its operations for the foreseeable future.
Internal Controls
The AR Committee has made due enquiry of the internal controls
of the Administrator. The AR Committee is satisfied with the
controls currently implemented by the Administrator. However, it
has requested that the Administrator keep the Company informed of
any developments and improved internal control procedures.
The most recent report on the internal control of JTC's
administration services, prepared in accordance with the ISAE 3402,
for the period from 1 April 2020 to 31 March 2021, has been
provided to the AR Committee .
Internal Audit
The Company has no employees and operates no systems of its own,
relying instead on the employees and systems of its external
service providers. Following a recommendation from the AR
Committee, the Board has therefore taken the decision that it would
be of insufficient benefit for the Company to engage an internal
auditor.
External Audit
The effectiveness of the external audit process is dependent on
appropriate audit risk identification at the start of the audit
cycle . The AR Committee received from Deloitte a detailed audit
plan identifying their assessment of the key risks. For the
financial year under review, the primary risks identified were in
respect of valuation of the Asset, the recognition of lease rental
income and the presumed risk on management override of
controls.
Using its collective skills, the AR Committee evaluates the
effectiveness of the audit process in addressing the matters raised
through the reporting it received from Deloitte at the conclusion
of the audit. In particular the AR Committee formally appraise
Deloitte against the following criteria:
-- Independence
-- Ethics and conflicts
-- Knowledge and experience
-- Challenge
-- Promptness
-- Cost
-- Overall quality of service
In addition the AR Committee sought feedback from the
Administrator on the effectiveness of the audit process.
For the financial year under review, the AR Committee was
satisfied that there had been appropriate focus on the primary
areas of audit risk and assessed the quality of the audit process
to be good.
The AR Committee holds meetings with the external auditor to
provide additional opportunity for open dialogue and feedback from
the auditor. Should it be necessary, the AR Committee members meet
with the external auditor without the Administrator and Asset
Manager being present. Matters typically discussed include the
auditor's assessment of business risks and management activity
thereon, the transparency and openness of interactions with the
Administrator, confirmation that there has been no restriction in
scope placed on them by the Administrator on the independence of
their audit and how they have exercised professional
scepticism.
Appointment and Independence
Deloitte provided audit services to the Company for the
financial year under review. Deloitte had been the Company's
external auditor since October 2012 , with the first audit being
carried out for the year ended 31 March 2012.
The external auditor is required to rotate the audit partner
responsible for the audit every five years. The lead audit partner
had been in place since January 2020 with his first audit reporting
period being the year to 31 March 2020. This was his second year of
involvement.
During the financial year under review the AR Committee
undertook a review of the audit function, undertaking a tender
process with a number of audit firms which resulted in the
recommendation to the Board, to appoint Grant Thornton Limited as
auditor for the financial year ended 31 March 2022, which the Board
accepted.
It is expected that Deloitte will resign and Grant Thornton
Limited will be appointed as external auditor to the Company on 2
August 2021. Grant Thornton Limited's tenure is therefore not
currently an area of consideration for the AR Committee.
The AR Committee considered Deloitte and Grant Thornton Limited,
the Company's new auditor, to be independent of the Company. The AR
Committee has provided the Board with its recommendation to
Shareholders on the ratification of the appointment of Grant
Thornton Limited as external auditor for the year ending 31 March
2022 at the forthcoming annual general meeting .
Non-Audit Services
To further safeguard the objectivity and independence of the
external auditor from becoming compromised, the AR Committee has a
formal policy governing the engagement of the external auditor to
provide non-audit services. No changes have been made to this
policy during the year. This policy specifies that the external
auditor should only be engaged for non-audit services where there
is considered to be a very low threat to auditor independence. No
non-audit services had been provided by Deloitte during the
year.
The external auditor is prohibited from providing any other
services without the AR Committee's prior approval. In reaching
such a determination the AR Committee will take into consideration
whether it is in the best interests of the Company that such
services should be supplied by the Company's external auditor
(rather than another service provider) and, if so, whether any
safeguards regarding auditor objectivity and independence in the
conduct of the audit should be put in place, whether these would be
effective and how such safeguards should be disclosed.
Committee Evaluation
The AR Committee's activities formed part of the review of Board
effectiveness performed in the year under review.
An internal evaluation of the AR Committee's effectiveness will
be carried out in 2021.
Geoffrey Hall
Chair of the Audit and Risk Committee
2 August 2021
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF DORIC NIMROD AIR ONE
LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Doric Nimrod Air One
Limited (the 'Company'):
-- give a true and fair view of the state of the Company's
affairs as at 31 March 2021 and of its loss for the year then
ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union; and
-- have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
We have audited the financial statements which comprise:
-- the statement of comprehensive income;
-- the statement of financial position;
-- the statement of cash flows;
-- the statement of changes in equity; and
-- the related notes 1 to 23.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as adopted by the European
Union.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements. We confirm that the non-audit services
prohibited by the FRC's Ethical Standard were not provided to the
Company.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Material uncertainty related to going concern
We draw attention to note 2 [J] in the financial statements
which indicates that, in June 2022, an ordinary resolution will be
proposed that the Company proceed to an orderly wind-up at the end
of the lease in December 2022. As stated in note 2 [J], these
events or conditions, along with the other matters as set forth in
note 2 [J] indicate that a material uncertainty exists that may
cast significant doubt on the Company's ability to continue as a
going concern. Our opinion is not modified in respect of this
matter.
In auditing the financial statements, we have concluded that the
directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate.
Our evaluation of the directors' assessment of the Company's
ability to continue to adopt the going concern basis of accounting
included:
-- evaluated management's assessment of the material uncertainty
and reviewed the articles of the Company to confirm details of the
ordinary resolution;
-- evaluated the ability of Emirates Airlines ("Emirates") to
meet the lease obligations as they fall due through the analysis of
publicly available financial information and through our own
independent investigations, including checking the credit rating of
Emirates;
-- confirmed with the directors and Investment Manager as to
whether any rental restructuring has been requested by Emirates and
collaborated responses with other evidence such as adherence to
lease payment schedules;
-- assessed whether there have been any lease payment defaults
since the year end by comparing scheduled lease payments to amounts
received; and
-- evaluated the financial support available to Emirates through
its main investor the United Arab Emirates ("UAE") and our
independent assessment on the main investor's ability to provide
support. This included evaluation of publicly available
announcements from Emirates, UAE as well as review of financial
statements of Emirates.
In relation to the reporting on how the Company has applied the
UK Corporate Governance Code, we have nothing material to add or
draw attention to in relation to:
-- the directors' statement in the financial statements about
whether the directors considered it appropriate to adopt the going
concern basis of accounting; and
-- the directors' identification in the financial statements of
the material uncertainty related to the Company's ability to
continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
4. Summary of our audit approach
Key audit matters The key audit matters that we identified in the current
year were:
* Going concern (see material uncertainty related to
going concern section);
* Valuation of aircraft; and
* Recognition of lease rental income.
Within this report, key audit matters are identified
as follows:
Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
------------------- -----------------------------------------------------------
Materiality The materiality that we used in the current year
was GBP553,000 which was determined on the basis
of 2% of shareholders' equity. This is consistent
with the prior year.
------------------- -----------------------------------------------------------
Scoping Audit work to respond to the risks of material misstatement
was performed directly by the audit engagement team.
------------------- -----------------------------------------------------------
Significant changes Ownership of aircraft has been removed from the key
in our approach audit matter "Valuation and ownership of aircraft"
as disclosed in the prior year. From the results
of our work in the prior year and understanding of
the balance we have reassessed the risk in the current
year as the ownership of aircraft is not complex
and does not involve judgement.
The risk relating to valuation of aircraft has been
increased in the current year due to the uncertainty
arising from the impact of the COVID-19 pandemic
and the very limited secondary market for A380 aircraft
indicating a material level of uncertainty over the
residual values which can be achieved by the Company.
We have also removed the accounting for debt using
the effective interest method as a key audit matter
in the current year. From the results of our work
in prior year and understanding of the balance we
have reassessed the risk in the current year as the
calculations are not complex or involve significant
judgements or estimation uncertainty.
The risk around going concern has increased in the
current year as a result of the material uncertainty
referred to Section 3 above.
------------------- -----------------------------------------------------------
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy; the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
5.1. Valuation of aircraft
Key audit matter Included in the Company's statement of financial
description position as at 31 March 2021 is an aircraft asset
amounting to GBP41.6 million (2020: GBP57.8 million)
as disclosed in Note 10 to the financial statements.
As explained in Note 2(l), the Company's accounting
policy is to measure its aircraft asset at depreciated
historic cost less impairment. The asset is being
depreciated on a straight-line basis over the term
of the lease to an estimated residual value at the
end of that period.
As stated in Note 3, estimation of the aircraft's
residual value is a significant source of estimation
uncertainty and is a key determinant in preparing
the financial statements. The Company uses external
valuers who provide an estimate of the residual value
which is based on significant judgement and assumptions
about current and future market conditions.
Note 2(J) and Note 3 describe the effects of the
uncertainties created by the COVID-19 pandemic and
the very limited secondary market for the A380 aircraft
on the residual values of the Company's assets. The
outbreak has caused extensive disruptions to businesses
and economic activities and, in particular, the airline
industry. There has been slow recovery of the widebody
aircrafts market with Emirates being the single largest
operator of the A380. Due to this impact by COVID-19
and Airbus cancelling the A380 programme, airlines
are retiring their A380 fleet earlier. The market
for the A380 remains illiquid with virtually no transactions
in the last 12 months and the prospect of significant
oversupply expected in the market driven by lower
demand and a number of airlines choosing to retire
or reduce their fleet. As a result, the Company has
used soft market values as the basis of residual
values rather than base value. As disclosed in note
3, if the assumptions used in the determining the
valuations prove to be false, actual results of operations
and the realisation of the Company's asset differ
from estimates set forth in the financial statements,
the difference in the valuation of the aircraft could
be material.
For the year ended 31 March 2021 a further impairment
of GBP6.3 million (2020: GBP12.8 million) has been
recognised.
The valuation of aircraft was deemed to be a key
audit matter as:
* judgement is required in assessing whether any
indicators of impairment exist and estimation is
required for key data inputs to the impairment review
model such as the residual value or terminal value,
expected useful life of the aircraft as well as the
discount rate and inflation rate used;
* the determination of residual values used in
determining depreciation requires significant
judgement. The basis of valuation used to determine
these residual values may either not be appropriate
or that the assumptions made by the Company's valuers
may not appropriately reflect the current market
conditions, including the impact of COVID-19 as well
as the limited market for the A380; and
The Audit and Risk Committee have referred to this
risk in their report on page 38 of the financial
statements.
----------------------- ------------------------------------------------------------------------------
How the scope Our procedures included:
of our audit responded * obtaining an understanding of the relevant business
to the key audit processes and controls associated with the valuation
matter of aircraft assets;
* evaluating relevant triggers and indicators of
impairement such as;
* market value decline;
* negative developments with regards to market,
technology and economy i.e. retirement of A380;
* assessing the reasonabless of the key inputs used in
the impairment model such as discount rate and useful
economic life;
* reconciled the cash flows within the model to rent
schedules;
* engaged our valuation specialists to assess the
reasonableness of the weighted average cost of
capital ("WACC") used by management;
* evaluating sensitivity analysis of the key inputs to
the model;
* assessing the completeness and accuracy of the
disclosures in the financial statements;
* assessing and challenging the residual value
estimates used by management by;
* assessing the basis of determination of residual
values in light of current market conditions;
* we worked with our internal aviation industry
specialists in assessing the conclusions reached by
the Company on the appropriateness of the selected
residual values when considered against available
market information, contradictory evidence, the terms
of the aircrafts lease agreements as well as
valuations obtained by the Company from expert
aircraft valuers;
* evaluating the competence, capability and objectivity
of the valuers used by management;
* assessing the completeness and accuracy of the
disclosure related to this material estimation
uncertainty as set out in Note 3.
----------------------- ------------------------------------------------------------------------------
Key observations While we note the increased estimation uncertainty
as a result of COVID-19 and the very limited secondary
market for the A380 aircraft in relation to residual
values of the Company's assets, we consider the basis
of valuation and assumptions used to be appropriate.
In addition, we concluded that the inputs used in
the impairment review including these residual values,
the resulting impairment adjustment GBP6.3 million
and the disclosures of the resulting sensitivities
in note 3 are appropriate.
----------------------- ------------------------------------------------------------------------------
5.2. Recognition of lease rental income
Key audit matter The Company's lease has been classified as an operating
description lease and as such rental income which amounts to
GBP14.8 million (2020: GBP15.4 million) is recognised
on a straight-line basis over the lease term, which
differs from the profile of actual rental payments.
As stated in Note 2 (K) the lease relating to the
aircraft asset has been classified as an operating
lease. As further stated in Note 3, classification
of leases as operating leases is a key determinant
in preparing the financial statements. Note 4 of
the financial statements sets out that a significant
portion of the lease rentals is receivable in US
Dollars and must be appropriately translated into
the Sterling functional and presentation currency.
The recognition of revenue also requires consideration
of all terms of the signed lease contract.
The recognition of revenue was deemed to be a key
audit matter as:
* revenue might not be properly recorded on a
straight-line basis in accordance with requirements
of IFRS 16 Leases and the lease contract term;
* deferred or accrued income might not be recognised
appropriately; and
* revenue transactions and related amortisation of
deferred income are significant to the Company's
financial performance, hence any material
misstatements in revenue will have an impact on
statement of comprehensive income.
----------------------- -------------------------------------------------------------------
How the scope Our procedures included:
of our audit responded * obtaining an understanding of the relevant business
to the key audit processes and controls and adopted a controls
matter reliance approach on recognition of lease income;
* assessing on whether the classification of the leases
as operating is appropriate with reference to the
lease terms and the nature of the asset and the
requirements of IFRS 16 Leases;
* developing independent expectations of lease income
for the year based on total lease rentals receivable,
the lease term and the applicable foreign exchange
rates during the year;
* testing the cut-off of lease rental income and the
measurement of deferred income at the year-end;
* tracing a sample of rental income receipts to bank
statements; and
* recalculating deferred and accrued rental income
recognised in the statement of financial position and
testing accuracy of related translation differences.
----------------------- -------------------------------------------------------------------
Key observations Having performed the procedures above, we concluded
that classification of the lease is appropriate and
that revenue recognition is in line with the terms
of the signed lease contract and is in line with
IFRS 16 Leases.
We also concluded that deferred and accrued income
balances recorded were appropriate.
----------------------- -------------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality GBP553,000 (2020: GBP636,000)
----------------------------------- ---------------------------------------------------------------------------------
Basis for determining materiality 2% (2020: 2%) of shareholders' equity.
----------------------------------- ---------------------------------------------------------------------------------
Rationale for the benchmark applied Our materiality is based on shareholders' equity of the Company. Comprehensive
income is significantly
influenced by fluctuations in exchange rates, hence it will not be a stable
benchmark to use
in our determination of materiality. We consider shareholders' equity to be the
most important
balance on which the shareholders would judge the performance of the Company.
----------------------------------- ---------------------------------------------------------------------------------
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole. Performance materiality was set at 70% of
materiality for the 2021 and 2020 audits. In determining
performance materiality, we considered the following factors:
a. the quality of the control environment and whether we were
able to rely on controls over a number of business processes;
and
b. our past experience of the audit, which has indicated a low
number of corrected and uncorrected misstatements.
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP27,000 (2020:
GBP31,000), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1. Scoping
Our audit was scoped by obtaining an understanding of the
Company and its environment, including internal control, and
assessing the risks of material misstatement. Audit work to respond
to the risks of material misstatement was performed directly by the
audit engagement team.
7.2. Our consideration of the control environment
The Company is administered by a third party Guernsey regulated
service provider, as part of our audit we assessed ISAE 3402 report
of the service organisations and obtained an understanding of the
relevant controls for debt, cash, expenses and revenue. In
addition, we also adopted a controls reliance approach in our
testing of recognition of lease rental income.
8. Other information
The other information comprises the information included in the
annual report other than the financial statements and our auditor's
report thereon. The directors are responsible for the other
information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
11.1. Identifying and assessing potential risks related to irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the nature of the industry and sector, control environment
and business performance including the design of the Company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- results of our enquiries of management and the audit
committee about their own identification and assessment of the
risks of irregularities;
-- any matters we identified having obtained and reviewed the
Company's documentation of their policies and procedures relating
to:
o identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
relevant internal specialists, including tax, aviation industry and
internal valuation specialists regarding how and where fraud might
occur in the financial statements and any potential indicators of
fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the valuation of
aircraft and recognition of lease rental income. In common with all
audits under ISAs (UK), we are also required to perform specific
procedures to respond to the risk of management override.
We also obtained an understanding of the legal and regulatory
framework that the Company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the Companies (Guernsey) Law, 2008.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
Company's ability to operate or to avoid a material penalty.
11.2. Audit response to risks identified
As a result of performing the above, we identified valuation of
aircraft and recognition of lease rental income as key audit
matters related to the potential risk of fraud. The key audit
matters section of our report explains the matters in more detail
and also describes the specific procedures we performed in response
to those key audit matters.
In addition to the above, our procedures to respond to risks
identified included the following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management and the audit committee concerning
actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance
and correspondence with the regulator; and
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the
audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
We are required to review the directors' statement in relation
to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the Company's compliance
with the provisions of the UK Corporate Governance Code specified
for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
-- the directors' statement with regards to the appropriateness
of adopting the going concern basis of accounting and any material
uncertainties identified set out on page 20;
-- the directors' explanation as to its assessment of the
Company's prospects, the period this assessment covers and why the
period is appropriate set out on page 21;
-- the directors' statement on fair, balanced and understandable set out on page 22;
-- the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks set out on page
19;
-- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems set
out on page 19; and
-- the section describing the work of the audit committee set out on page 28.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records.
We have nothing to report in respect of these matters.
14. Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
David Becker,
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
02 August 2021
ST A TEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2021
Year ended Year ended
Notes 31 Mar 2021 31 Mar 2020
GBP GBP
INCOME
A rent income 4 10,304,627 10,871,136
B rent income 4 4,508,388 4,520,740
-------------
14,813,015 15,391,876
EXPENSES
Operating expenses 5 (679,610) (641,063)
Depreciation of Asset 10 (9,862,508) (12,654,636)
Impairment of Asset 10 (6,316,569) (12,847,569)
-------------
(16,858,687) (26,143,268)
Net loss for the year before finance
costs and foreign exchange losses (2,045,672) (10,751,392)
Finance costs 11 (638,738) (1,274,983)
Net loss for the year after finance
costs before foreign exchange losses (2,684,410) (12,026,375)
Unrealised foreign exchange profit/(loss) 7 2,385,102 (1,727,598)
------------- -------------
Loss for the year (299,308) (13,753,973)
Other Comprehensive Income - -
------------- -------------
Total Comprehensive Losses for
the year (299,308) (13,753,973)
------------- -------------
Pence Pence
Loss per Share for the year - Basic
and Diluted 9 (0.71) (32.40)
In arriving at the results f or the fin ancial year, all amounts
abo ve relate to c ontinuing operations.
T h e notes on pages 61 to 88 f orm an integral part of these
fin ancial s t atements.
ST A TEMENT OF FINANCIAL POSITION
A s at 31 March 2021
31 Mar 2021 31 Mar 2020
Notes G BP G BP
NON-CURRENT A SSETS
A ircra ft 10 41,605,961 57,785,038
----------------------- -----------------------
CURRENT A SSETS
Accrued income 471,201 953,531
Cash and c ash equiv ale nts 17 2,092,159 3,770,813
Receiv ables 13 114,362 13,687
----------------------- -----------------------
2,677,722 4,738,031
----------------------- -----------------------
TOTAL A SSETS 44,283,683 62,523,069
======================= =======================
CURRENT LI ABILITIES
B o rrowin gs 15 3,046,374 9,578,401
De f erred income 6,077,975 99,554
P a y ab les - due within one y ear 14 53,405 34,547
----------------------- -----------------------
9,177,754 9,712,502
NON-CURRENT LI ABILITIES
B o rrowin gs 15 2,294,683 5,877,968
De f erred income 5,130,919 15,132,464
----------------------- -----------------------
7,425,602 21,010,432
----------------------- -----------------------
TOTAL LI ABILITIES 16,603,356 30,722,934
======================= =======================
TOTAL NET A SSETS 27,680,327 31,800,135
----------------------- -----------------------
EQ UITY
S ha re c apital 16 39,016,728 39,016,728
Retain ed loss (11,336,401) (7,216,593)
----------------------- -----------------------
27,680,327 31,800,135
----------------------- -----------------------
P e nce P e nce
Net Asset V alue per Ordin ary S hare based
o n 42,450,000 (31 March 2020: 42,450,000)
s hares in issue 65.21 74.91
The financial statements were approved by the Board and
authorised for issue on 2 August 2021 and are signed on its behalf
by:
Charles Wilkinson Geoffrey Hall
Director Director
T h e notes on pages 61 to 88 f orm an integral part of these
fin ancial s t atements.
ST A TEMENT OF CASH FLOWS
For the year ended 31 March 2021
Year ended Year ended
31 Mar 2021 31 Mar 2020
Notes G BP G BP
OPE RATING ACTIVITIES
Loss f o r the year (299,308) (13,753,973)
Mo v ement in accrued and de f erred
income (2,003,144) 1,104,704
Impairment of Asset 10 6,316,569 12,847,569
De preciation of Asset 10 9,862,508 12,654,636
Loa n interest payable 11 578,184 1,214,263
Increase/(decrease) in pa y ables 18,858 (141,264)
Increase in receiv ables (100,671) (105)
A mortisation of debt arrangement
costs 11 60,554 60,720
Foreign e xchange mo v ement 7 (2,385,102) 1,727,598
------------------------ -----------------------
NET CA SH FROM O PERATING ACTIVITIES 12,048,448 15,714,148
------------------------ -----------------------
FINANCING ACTIVITIES
Divid ends paid 8 (3,820,500) (3,820,500)
Re pa yments of c apital on borrowin
gs 20 (9,132,742) (11,113,917)
Interest on borrowin gs 20 (577,143) (1,233,659)
------------------------ -----------------------
NET CA SH USED IN FINANCING ACTIVITIES (13,530,385) (16,168,076)
------------------------ -----------------------
CA SH AND CA SH EQUIV ALENTS AT
BBEGINNINGBEGINNING
BEGINNING O F YEAR 3,770,813 4,009,908
D e crease in c ash and c ash equiv
ale nts (1,481,937) (453,928)
Effects of foreign exchange rates (196,717) 214,833
------------------------ -----------------------
CA SH AND CA SH EQUIV ALENTS AT
OF
YEAR 17 2,092,159 3,770,813
------------------------ -----------------------
T h e notes on pages 61 to 88 f orm an integral part of these
fin ancial s t atements.
ST A TEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2021
Notes Share Retained Total
Capital Loss
GBP GBP GBP
Balance as at 1 April
2020 39,016,728 (7,216,593) 31,800,135
Total Comprehensive Losses
for the year - (299,308) (299,308)
Dividends paid 8 - (3,820,500) (3,820,500)
----------- ------------- ------------
Balance as at 31 March
2021 39,016,728 (11,336,401) 27,680,327
----------- ------------- ------------
Notes Share Retained Total
Capital Loss
GBP GBP GBP
Balance as at 1 April
2019 39,016,728 10,357,880 49,374,608
Total Comprehensive Losses
for the year - (13,753,973) (13,753,973)
Dividends paid 8 - (3,820,500) (3,820,500)
------------ ------------- -------------
Balance as at 31 March
2020 39,016,728 (7,216,593) 31,800,135
------------ ------------- -------------
T h e notes on pages 61 to 88 f orm an integral part of these
fin ancial s t atements.
NO TES TO THE FINANCIAL ST A TEMENTS
For the year ended 31 March 2021
1 GE NERAL INFORM ATION
The Company was incorporated in Guernsey on 8 October 2010 with
registered number 52484. The address of the registered office is
given on page 89. Its Share Capital consists of one class of the
Shares and Administrative Shares. T he Compan y 's Shares have been
admitted to trading on the SFS of the LSE Main Market.
T h e Compan y 's in v estment objective is to obtain income
returns and a capital return f or its S harehold ers by acquirin g,
le asing and then s elling a sin gle Aircra ft. The principal
activities of the Company are set out in the Chair's Statement and
Management Report on pages 7 to 10 and 11 to 15 respectively.
2 A CCOUNTING POLICIES
T h e sig nificant accounting policies adopted by the Company
are as f ollows:
(a) Ba sis of Preparation
T h e fin ancial st atements ha ve been prepared in con f ormity
with IFRS, as adopted by the EU, which comprise standards and
interpretations approved by the IASB and IFRIC as adopted by the EU
and applicable Guernsey law. The financial statements have been
prepared on a historical cost basis.
T h e accounting policies adopted are consist ent with those of
the pre vio us fin ancial y ear, e xcept f or the adoption of the
new and amended st andards set out belo w:
(b) Adoption of new and revised Standards
New and amended IFRS Standards that are effective for current
year
The following Standard and Interpretations have been adopted in
the current year. Their adoption has not had a material impact on
the amounts reported in these financial statements and is not
expected to have any impact on future financial periods except
where stated otherwise:
IAS 1 and IAS 8, 'changes in accounting estimates and error' on
definition of material - These amendments to IAS 1, IAS 8 and
consequential amendments to other IFRSs: use a consistent
definition of materiality throughout IFRSs and the Conceptual
Framework for Financial Reporting; clarify the explanation of the
definition of material; and incorporate some of the guidance in IAS
1 about immateriality information. The effective date is for annual
periods beginning on or after 1 January 2020. The standard has not
had a material impact on the financial statements or performance of
the Company.
New and Revised Standards in issue but not yet effective
IFRS 16 - Covid-19 related rent concessions. As a result of the
coronavirus (COVID-19) Pandemic, rent concessions have been granted
to lessees. Such concessions might take a variety of forms,
including payment holidays and deferral of lease payments. Lessees
can elect to account for such rent concessions in the same way as
they would if they were not lease modifications. In many cases,
this will result in accounting for the concession as variable lease
payments in the period(s) in which the event or condition that
triggers the reduced payment occurs. The standard is not expected
to have a material impact on the financial statements or
performance of the Company as it is applicable to lessees. The
effective date is for annual periods beginning on or after June
2020. The standard is not expected to have a material impact on the
financial statements or performance of the Company and is not
endorsed by the EU.
IAS 1 Classification of Liabilities as Current or Non-current.
The IASB issued amendments to paragraphs 69 to 76 of IAS 1 to
specify the requirements for classifying liabilities as current or
non-current. The effective date is for annual periods beginning on
or after 1 January 2023. The standard is not expected to have a
material impact on the financial statements or performance of the
Company and is not endorsed by the EU.
(c) Taxation
The Company has been assessed for tax at the Guernsey standard
rate of 0 per cent.
(d) Share Capital
Shares are classified as equity. Incremental costs directly
attributable to the issue of Shares are recognised as a deduction
from equity.
(e) Expenses
All expenses are accounted for on an accruals basis.
(f) Interest Income
Interest income is accounted for on an accruals basis.
(g) Foreign Currency Translation
The currency of the primary economic environment in which the
Company operates (the "functional currency") is GBP, GBP or
Sterling , which is also the presentation currency. Transactions
denominated in foreign currencies are translated into Sterling at
the rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies at the reporting date are translated into the functional
currency at the foreign exchange rate ruling at that date. Foreign
exchange differences arising on translation are recognised in the
Statement of Comprehensive Income.
(h) Cash and Cash Equivalents
Cash at bank and short term deposits which are held to maturity
are carried at cost. Cash and cash equivalents are defined as call
deposits, short term deposits with a term of no more than three
months from the start of the deposit and highly liquid investments
readily convertible to known amounts of cash and subject to
insignificant risk of changes in value.
(i) Segmental Reporting
The directors are of the opinion that the Company is engaged in
a single segment of business, being the acquiring, leasing and
selling of the Aircraft.
(j) Going Concern
The directors in consultation with the Asset Manager are
monitoring the continuous effect of the Pandemic generally on the
aviation industry and specifically on the Company's aircraft value
and the financial wellbeing of its Lessee both now and in the
future. The Pandemic continues to have a pervasive impact on the
global economy and it remains possible that the Company's future
performance could be impacted in this prolonged period of
uncertainty. In many jurisdictions restrictions on the ability of
people to travel still adversely affect the airline sector, and by
extension the aircraft leasing sector. The risk therefore remains
that some airlines may not be able to pay rent as it falls due. The
impact of the Pandemic on the aviation industry has been
significant, with a large part of the global passenger aircraft
fleet temporarily grounded. These factors, together with wider
economic uncertainty and disruption, have had an adverse impact on
the future value of the Aircraft owned by the Company, and could
also negatively impact the sale, re-lease, refinancing or other
disposition of the Aircraft.
Given the prolonged impact of the Pandemic, increased lessee
counterparty credit risk remains in existence and there could be
requests for lease rental deferrals. Reduced rents receivable under
the Lease may not be sufficient to meet the fixed loan interest and
regular repayments of debt scheduled during the life of the Loan
and may not provide surplus income to pay for the Company's
expenses and permit the declaration of dividends.
The option to remarket the Aircraft following a potential event
of default by the Lessee has not been taken into account. The
period of time necessary to successfully complete such a process is
beyond the twelve months forecasting horizon of the going concern
considerations. This applies in particular in times of COVID-19, as
various restrictions are still in place to contain the
Pandemic.
Based on current information the directors have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future, although the risk
to this is clearly higher compared to a pre-COVID-19
environment.
The Board will continue to actively monitor the financial impact
on the Company from the evolving position with its aircraft lessee
and lender whilst bearing in mind its fiduciary obligations and the
requirements of Guernsey law which determine the ability of the
Company to make dividends and other distributions.
Note 15 ('Borrowings') describes the borrowings obtained by the
Company to part-finance the acquisition of its Aircraft. The
Company has obligations under the loans to make scheduled
repayments of principal and interest, which are serviced by the
receipt of lease payments from Emirates.
The Company's aircraft with a carrying value of GBP41,605,961 is
pledged as security for the Company's borrowings (see note 15).
The directors, with the support of its Asset Manager, believe
that it is reasonable to assume as of date of approval of annual
financial statements that Emirates will continue with the
contracted lease rental payments due to the following:
- Emirates continues to be a going concern as at the date of the
Lessee's latest signed annual financial report for the financial
year ended on March 31, 2021.
- Challenged by an unprecedented drop in passenger air travel
during 2020, the Lessee reacted quickly and temporarily adjusted
its business model with a particular focus on air cargo services.
The high Pandemic-driven demand in this space helped the Lessee to
contain its losses in the passenger segment.
- Although Emirates concluded its last financial year with the
first net loss in more than 30 years and refunded already paid
tickets in the amount of US$ 2.3 billion, it still has a
substantial cash position, which also benefited from the support of
its ultimate shareholder.
- Emirates confirmed to have access to the capital markets and
was already able to secure committed offers for the financing of
two upcoming aircraft deliveries.
- The Government of Dubai has injected capital in the combined
amount of US$3.1 billion into Emirates so far, since the Pandemic
brought global air travel to a near halt. It previously had
publicly confirmed that they will financially support Emirates
during this period, indicating the trust capital markets have in
Emirates.
- Emirates' listed debt and CDS's are trading at non-distressed levels.
- As of the date of the annual financial report, the Board is
not aware of a formal request to the Company for a lease deferral
or any other efforts that would result in the restructuring of the
existing transaction
- Emirates has paid all the lease rentals to the Company in a timely manner.
- If end of lease negotiations with Emirates have not been
concluded by the end of the terms of the current Lease, the Lease
rentals due under the existing agreement must continue to be
paid.
The directors have considered Emirates' ability to continue
paying the lease rentals over the next 12 months and are satisfied
that the Company can meet its liabilities as they fall due over
this period. Further detail regarding the assumptions adopted when
forming this conclusion can be found in the Viability Statement on
page 21. Refer to note 12 for expiry dates of the leases
Although the Company does not have a fixed life, the articles of
incorporation require that the directors convene a general meeting
of the Company six months before the end of the term of the Lease
where an ordinary resolution will be proposed that the Company
proceed to an orderly wind-up at the end of the term of the Lease
(the "Liquidation Resolution") and the directors will consider (and
if necessary, propose to Shareholders) alternatives for the future
of the Company, including re-leasing the Asset, or selling the
Asset and reinvesting the capital received from the sale of the
Asset in another aircraft.
The outcome of the Liquidation Resolution will be known at a
point within the 12 month period commencing on the date when the
Board approved the Annual Financial Report ("AFR"), which is due to
take place in June 2022. This is six months before the end of the
lease term in December 2022 and creates a material uncertainty that
may cast significant doubt on the Company's ability to continue as
a going concern. In this event, the Company would proceed with an
orderly wind-up after the lease-end. Such a determination would
mean that the Company, though solvent and able as before to meet
its liabilities as they fall due, would no longer meet the
definition of a going concern i.e. an entity which will continue
its operations for the foreseeable future.
(k) Leasing and Rental Income
The Lease relating to the Asset has been classified as an
operating lease as the terms of the Lease do not transfer
substantially all the risks and rewards of ownership to the Lessee.
The Asset is shown as a non-current asset in the Statement of
Financial Position. Further details of the Lease are given in note
12.
Rental income and advance lease payments from the operating
lease are recognised on a straight line basis over the term of the
Lease. Initial direct costs incurred in negotiating and arranging
an operating lease are added to the carrying amount of the leased
asset and amortised on a straight-line basis over the lease
term.
(l) Property, Plant and Equipment - Aircraft
In line with IAS 16, the Asset is initially recorded at the fair
value of the consideration paid. The cost of the Asset is made up
of the purchase price of the Asset plus any costs directly
attributable to bringing it into working condition for its intended
use. Costs incurred by the Lessee in maintaining, repairing or
enhancing the Aircraft are not recognised as they do not form part
of the costs to the Company. Accumulated depreciation and any
recognised impairment loss are deducted from cost to calculate the
carrying amount of the Asset.
Depreciation is recognised so as to write off the cost of the
Asset less the estimated residual value over the estimated useful
life of the Asset of 12 years, using the straight line method. As
at 31 March 2021, the estimated residual value of the Asset is
GBP31.2 million (31 March 2020: GBP36 .6 million). Residual value
was arrived at by taking the average amount of three independent
external valuers and after taking into account disposition fees
where applicable. The residual value of the A380 Aircraft was
determined using the soft value excluding inflation, which best
approximates residual value as required by IAS 16.
Due to the change in the estimate of residual value of the
Aircraft which have been translated at the foreign exchange rate
prevailing as at 31 March 2021, there has been a GBP2,008,059
increase in the annual depreciation charge as compared to what the
charge would have been if based on residual value determined as at
31 March 2020 translated at the foreign exchange prevailing as at
31 March 2020
The depreciation method reflects the pattern of benefit
consumption. The residual value is reviewed annually and is an
estimate of the fair amount the entity would receive today if the
Asset were already of the age and condition expected at the end of
its useful life. Useful life is also reviewed annually and, for the
purposes of the financial statements, represents the likely period
of the Company's ownership of the Asset. Depreciation starts when
the Asset is available for use.
A t each audited St atement of Fin ancial Position date, the
Company re vie ws the carrying amounts of the Asset to determine
whether there is any in dication that the Asset has su ff ered an
im pairment loss. If any such in dication e xists, the reco v
erable amount of the Asset is estim ated to determine the e xtent
of the impairment loss (if an y). Further details are given in note
3.
Recoverable amount is the higher of fair value less costs to
sell and VIU. In assessing VIU, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the Asset for which the estimates of
future cash flows have not been adjusted.
An impairment loss exists when the carrying value of an asset or
cash generating unit exceeds its recoverable amount, since it was
not possible to measure fair value less costs of disposal because
there is no basis for making a reliable estimate of the price at
which an orderly transaction to sell the asset would take place
between market participants at the measurement date under current
market conditions hence, the Company used the asset's value in use
as it recoverable amount.
(m) Financial instruments
A financial instrument is recognised when the Company becomes a
party to the contractual provisions of the instrument. Financial
liabilities are derecognised if the Company's obligations,
specified in the contract, expire or are discharged or
cancelled.
Financial assets are derecognised if the Company's contractual
rights to the cash flows from the financial assets expire, are
extinguished, or if the Company transfers the financial assets to a
third party and transfers all the risks and rewards of ownership of
the Asset, or if the Company does not retain control of the asset
and transfers substantially all the risk and rewards of ownership
of the Asset.
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at:
- Amortised cost;
- FVOCI; or
- FVTPL.
The classification of financial assets under IFRS 9 is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. The Company only has
financial assets that are classified as amortised cost.
i) Financial assets held at amortised cost
A financial asset is measured at amortised cost if it meets both
of the following conditions and is not designated as at FVTPL:
- it is held within a business model whose objective is to hold
assets to collect contractual cash flows; and
- its contractual terms give rise on specified dates to cash
flows that are solely payments of principal and interest on the
principal amount outstanding.
Assets that are held for collection of contractual cash flows
where those cash flows represent solely payments of principal and
interest are measured at amortised cost. These assets are
subsequently measured at amortised cost using the effective
interest method. The effective interest method calculates the
amortised cost of financial instruments and allocates the interest
over the period of the instrument.
The Company's financial assets held at amortised cost include
trade and other receivables and cash and cash equivalents.
The Company assesses on a forward looking basis the expected
credit losses associated with its financial assets held at
amortised cost. The impairment methodology applied depends on
whether there has been a significant increase in credit risk.
ii) Financial liabilities held at amortised cost
Financial liabilities consist of payables and borrowings. The
classification of financial liabilities at initial recognition
depends on the purpose for which the financial liability was issued
and its characteristics. All financial liabilities are initially
measured at fair value, net of transaction costs. All financial
liabilities are recorded on the date on which the Company becomes
party to the contractual requirements of the financial liability.
Financial liabilities are subsequently measured at amortised cost
using the effective interest method, with interest expense
recognised on an effective yield basis.
T h e e ff ective interest method is a method of calculating the
amortised cost of the fin ancial liability and of allocating
interest e x pense o v er the rele v ant perio d. T he e ff ective
interest rate is the rate that e x actly discounts estim ated f
uture cash pa yments through the e x pect ed life of the fin ancial
liability, or, where appropriate, a s horter perio d, to the net
carrying amount on initial recognition.
T h e Company derecognises fin ancial liabilities when, and only
when, the Compan y 's obligations are discharged, cancelled or they
e x pir e.
3 SIGNIFICANT JUDGEMENTS AND ESTIMATES
I n the application of the Compan y 's accounting policies,
which are describ ed in note 2, the direct ors are requir ed to
make judgements, estim ates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent
from other sources. T he estim ates and associated assumptions are
based on historical e x perie nce and other f act ors that are
considered to be rele v ant. Act ual results may diff er from these
estim ates.
T h e estim ates and underlying assumptions are re vie wed on an
ongoing basis. Re visio ns to accounting estim ates are recognised
in the period in which the estim ate is re vised if the re vision a
ff ects only that perio d, or in the period of the re vision and f
uture perio ds if the re vision a ff ects both current and f uture
perio ds.
T h e f ollowing are the critical judgements and estim ates that
the direct ors ha ve made in the process of applying the Compan y
's accounting policies and that ha ve the most significant e ff ect
on the amounts recognised in fin ancial st atements.
Estimates
Re sidual V alue, Impairment and Useful Life of Aircraft
A s describ ed in note 2 (l), the Company depreciates the Asset
on a straig ht line basis o v er the estim ated use f ul life of
the Asset after taking into consideration the estim ated residual v
alu e. IAS 16 requir es residual v alue to be determin ed as an
estim ate of the amount that the Company would currently obtain
from the disposal of the Asset, a fter deducting the estim ated
costs of disposal, if the Asset were of the age and condition e x
pect ed at the end of its use f ul lif e. Ho we v er, there is
currently no data for aircraft of a similar type of sufficient age
f or the direct ors to make a dir ect market comparison in making
this estim ation. The residual values of the A380 Aircraft are
determined using soft values excluding inflation since the
directors consider this best approximates to residual value as
required by IAS 16.
In estimating residual value for the year, the directors refer
to future soft values (excluding inflationary effects) for the
Asset obtained from three independent expert aircraft valuers. This
has resulted in a further reduction in the anticipated residual
value of the Aircraft since the prior financial year. Details of
which have been disclosed in note 10.
The Company's future performance can potentially be impacted
should COVID-19 have a pervasive and prolonged impact on the
aviation industry and on the business of its lessee and also affect
the residual value of the aircraft it owns. This together with the
wider economic uncertainty and disruption, are likely to have an
adverse impact on the future value of the aircraft asset owned by
the Company, as well as on the sale, re-lease, or other disposition
of the relevant aircraft. Therefore the estimation of residual
value remains subject to material uncertainty.
Re sidual V alue, Impairment and Useful Life of the A sset
If the estimate of uninflated residual value for use in
calculating depreciation had been decreased by 30 per cent with
effect from the beginning of this year, the depreciation charge for
the year would have increased by approximately GBP3.5 million (31
March 2020: GBP2 million). However because residual value is a
component of the VIU calculation that forms part of the impairment
loss calculation, the overall impact on profit for the Period would
be GBP8.5 million (see page 57).
An increase in residual value by 30 per cent. would have been an
equal but opposite effect. This reflects the range of estimates of
residual value that the directors believe would be reasonable at
this time. The useful life of the Asset is based on the expected
period for which the Company will own and lease the Aircraft. The
Board expects that the Asset will have a working life in excess of
this period.
The impairment assessment was performed by comparing the
depreciated cost of the Aircraft with VIU (since it was not
possible to measure fair value less costs of disposal because there
is no basis for making a reliable estimate of the price at which an
orderly transaction to sell the asset would take place between
market participants at the measurement date under current market
conditions hence, the entity used the asset's value in use as it
recoverable amount). Rental cash flows to the end of the contracts
have been used in the calculation of VIU as the cash flows are
contractual. Any assumptions with regards to issues in counterparty
credit risk would be reflected in the discount rate used to
calculate the net present value of future cash flows. In
determining the VIU, the gross value of future contractual cash
flows including a residual value assumption was discounted to
present value, using the Company's WACC (6.5 per cent). The present
value produced by this calculation was lower as at 31 March 2021
than depreciated cost and so gave rise to an impairment loss.
Residual values for the purpose of the impairment test are
determined to be the soft values (at an inflation rate of 1.5 per
cent at the end of the Aircraft's useful life), being considered
the most appropriate. A soft market is considered where the world's
principal traffic generating regions are in the middle of a
recession or a period of economic stagnation, which historically
have a negative impact on aircraft values. This is when airlines
experience low growth or even traffic reductions, make losses, cut
their fleets and staff or reduce fleet growth plans. The market
becomes imbalanced, with supply outstripping demand, resulting in
more parked aircraft and lower utilisation rates, which in turn,
increase aircraft availability. The prevailing conditions, the lack
of transactional data and the limited second hand market for A380
aircraft that currently exists means that the independent expert
aircraft valuers have attributed a more significant weighting to a
part out value when determining their soft value point estimate. It
is also assumed that a market will exist under each scenario
contemplated when determining those valuations. If the assumptions
prove to be false, actual results of operations and realisation of
the Company's Aircraft asset could differ from the estimates set
forth in these financial statements, and the difference could be
material.
Additionally, these values have been tested with regards its
sensitivity to the discount rates. Discount rates at a -0.5 per
cent and +0.5 per cent interval have been tested on either side of
the WACC (6.5 per cent) initially, with -1 per cent and +1 per cent
intervals used for the analysis thereafter.
The Asset Manager considers that the inflated future soft value
is the most appropriate measure to use for the Residual Value for
the following reasons:
-- The Residual Value is discounted at the WACC which would
include a return for the time value of money (inflation). The
inflated values (1.5 per cent. p.a. inflation assumed) are
therefore used to avoid double counting when producing the
discounted future cash flow value.
-- The calculation of cash flow is an assumption on the
Company's best estimation of a) contracted cash flows and b)
residual. Pricing increases of 1.5 per cent p.a. is considered to
be the best estimation as to what the Company would receive for
residual value in future
years on a like for like basis, taking the current economic
climate into account.
Rental cash flows to the end of the contract has been used in
the calculation of the future cash flow as the cash flows are
contractual. Any assumptions with regards issues in counterparty
credit risk would be reflected in the discount rate used to
calculate the net present value of future cash flows. The
directors, with the support of its Asset Manager believe that for
the Company it is reasonable to assume as of date of approval of
the Company's annual financial statements that Emirates will
continue with the contracted lease rental payments and there is no
evidence at this time that either Emirates will default. The
marketability of the aircraft post lease will depend on how demand
for air travel will bounce back in a post COVID-19-crisis
environment.
The directors on the advice of the Asset Manager considers that
6.5 per cent. is the most appropriate WACC for the following
reasons:
-- The discount rate should be a rate commensurate with what a
normal market participant would consider to be the risk inherent in
the assets.
-- The risk profile of Emirates. Emirates unsecured USD bonds
indicate a running USD yield of 3.8 per cent to 4.4 per cent,
depending on the maturity .
-- By using soft values to approximate residual values (and 1.5
per cent p.a. inflation), the discount rate is considered
appropriate to avoid double counting of risk.
Based on the impairment review performed, an impairment loss of
GBP 6,316,569 was recognised in the current year (31 March 2020:
GBP12,847,569), which resulted in an updated carrying value of the
Aircraft in total to GBP41,605,961 at year end, as reflected in
Note 10 .
If the discount rate had been decreased by 0.5 per centage
points with effect from the beginning of the year, the net profit
for the year and closing shareholder's equity would have been
increased by approximately GBP0.3 million. An increase in the
discount rates by 0.5 per centage points would have had an equal
but opposite effect.
If the latest residual value estimates had been decreased by 30
per cent., the impairment loss would have increased to GBP5
million. This together with the increased depreciation charge of
GBP3.5 million (see page 57) means that the overall impact of a 30
per cent. fall in residual values would be to reduce net profit for
the year and closing Shareholders equity by 8.5 million. An
increase in residual value estimates would have an equal and
opposite effect.
Impairment
As described in note 2(l), an impairment loss exists when the
carrying value of an asset or cash generating unit exceeds its
recoverable amount, since it was not possible to measure fair value
less costs of disposal because there is no basis for making a
reliable estimate of the price at which an orderly transaction to
sell the asset would take place between market participants at the
measurement date under current market conditions hence the Company
used the asset's value in use as it recoverable amount.
The directors review the carrying amount of its Asset at each
audited Statement of Financial Position date and monitor the Asset
for any indications of impairment as required by IAS 16 and IAS
36.
In assessing VIU, the estimated future cash flows expected to be
generated by the Asset (ie the income streams associated with the
Lease and the expected future market value of the Aircraft at the
end of the Lease) are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the Asset and the
credit risk profile of the Lessee.
In determining fair value less costs of disposal, recent market
transactions are taken into account, if available. If no such
transactions can be identified, an appropriate valuation model is
used. Such valuation reflects the current use given the fact that
the Aircraft are held for use in a leasing business.
Factors that are considered important which could trigger an
impairment review include, but are not limited to, significant
decline in the market value beyond that which would be expected
from the passage of time or normal use, significant changes in the
technology and regulatory environments, evidence from internal
reporting which indicates that the economic performance of the
Asset is, or will be, worse than expected.
The Board together with the Asset Manager have conducted an
impairment review in the current year as the below item may result
in pricing changes for the Aircraft:
-- The impact of COVID-19 on the business of airlines and
indirectly aircraft values, as well as on the credit risk profile
of the Company's Lessee could indicate the need for impairment.
Judgements
O perating Le ase Commitments - Company as Lessor
The Company has entered into a lease on the Asset. The Company
has determined, based on an evaluation of the terms and conditions
of the arrangements, that it retains all the significant risks and
rewards of ownership of this asset and accounts for the contract as
an operating lease.
The Company has determined that the operating lease on the Asset
is for 12 years without an extension option.
Functional Currency
The currency of the primary economic environment in which the
Company operates (the functional currency) is GBP, which is also
the presentation currency.
This judgement is made on the basis that this is representative
of the operations of the Company due to the following:
-- the Company's share capital was issued in GBP and;
-- its dividends are paid to Shareholders in GBP, and that
certain of the Company's significant operating expenses as well as
portion of the Groups' rental income are incurred/earned in
GBP.
In addition, the set-up of the leasing structure was designed to
offer a GBP return to GBP investors.
4 RENTAL INCOME
Year ended Year ended
31 Mar 2021 31 Mar 2020
GBP GBP
A rent income 7,918,707 12,174,948
Revenue received but not yet
earned - (1,303,812)
Revenue earned but not received
in the Period 2,385,920 -
----------- --------------
10,304,627 10,871,136
----------- --------------
B rent income 4,891,164 4,321,632
Revenue received but not yet
earned (382,776) -
Revenue earned but not received
in the
Period - 199,108
----------- --------------
4,508,388 4,520,740
----------- --------------
Total rental income 14,813,015 15,391,876
----------- --------------
Re ntal income is deriv ed from the le asing of the Asset. Re nt
is split into A rent, which is receiv ed in $ an d B rent, which is
receiv ed in Sterling. Re ntal income receiv ed in US dollars is
tra nslated into the f unctio nal currency (Sterling) at the date
of the transactio n.
A n adjustment has been made to spread the act ual total income
receiv able o v er the term of the Lease.
5 OPE RATING EXPENSES
Year ended Year ended
31 Mar 2021 31 Mar 2020
G BP G BP
122,859 120,156
Corporate shareholder and advisor fee
(note 22)
A sset management f ee (note 22) 307,147 300,388
Liason agency fees (note 22) 11,908 11,733
A d ministration f ees (note 22) 59,503 61,763
A ccountancy f ees 11,622 11,383
Re gistrars f ee (note 22) 10,187 11,083
A ud it f ee 25,400 22,225
Direct ors' remuneration (note 6) 68,000 69,564
Direct ors' and o fficers' insurance* 27,186 7,878
Lega l and pro f essional e x penses 6,699 7,155
A nnua l f ees 7,158 7,158
O ther operating e x penses 21,941 10,577
--------------------------- ---------------------------
679,610 641,063
--------------------------- ---------------------------
* Due to market conditions at renewal, the directors' and
officers' insurance premium was subject to a large increase.
6 DIRECTORS' REMUNERATION
Under their terms of appointment, each director is paid a fee of
GBP15,000 per annum by the Company, except for the Chair, who
receives GBP20,000 per annum and the Chair of Audit Committee, who
receives GBP18,000 per annum. The rate of remuneration per director
has remained unchanged.
7 UNREALISED FOREIGN EXCHANGE (GAINS)/
LOSSES Year ended Year ended
31 Mar 2021 31 Mar 2020
G BP G BP
Cash at bank 196,717 (214,833)
Deferred income (1,537,655) 675,485
Borrowings (1,044,164) 1,266,946
------------------- ---------------------------
(2,385,102) 1,727,598 1,266,946
------------------- ---------------------------
The foreign exchange gain in the year reflects the 9.89 per
cent. movement in the Sterling/US dollar exchange rate from 1.242
as at 31 March 2020 to 1.3783 as at 31 March 2021.
8 DIVIDS IN RES PECT OF E QUITY SHARES
Year ended
31 Mar 2021
GBP Pence per
share
First interim dividend 955,125 2.25
Second interim dividend 955,125 2.25
Third interim dividend 955,125 2.25
Fourth interim dividend 955,125 2.25
---------- -----------
3,820,500 9.00
---------- -----------
Year ended
31 Mar 2020
GBP Pence per
share
First interim dividend 955,125 2.25
Second interim dividend 955,125 2.25
Third interim dividend 955,125 2.25
Fourth interim dividend 955,125 2.25
------------------- -------------------
3,820,500 9.00
------------------- -------------------
Refer to the Subsequent Events in note 23 in relation to
dividends declared in April and July 2021.
9 LOSS P E R SHARE
LPS is based on the net loss f or the year attrib utable to the
S harehold ers of GBP299,308 (31 March 2020: net loss of
GBP13,753,973 and 42,450,000 (31 March 2020: 42,450,000) S hares
being the weig hted a v erage number of S hares in issue during the
year.
T he re are no dilutive instruments and there f ore basic and
diluted LPS are identical.
10 P ROPERTY, PLANT AND E QUIPMENT - AIRCRAFT
COST A ir craft
A s at 1 Apr 2020 G BP
114 ,532,547
-----------------
A s at 31 Mar 2021 114 ,532,547
A CCUMULATED DEPRECIATION AND IMPAIRMENT
A s at 1 Apr 2020 56,747,509
-----------------
Depreciation charge based on previous residual values 7,854,449
Adjustment due to change in US dollar residual values 738,123
Adjustment due to FX movements on residual values 1,269,936
-----------------
Depreciation charge for the year 9,862,508
Adjustment due to impairment 6,316,569
A s at 31 Mar 2021 72,926,586
-----------------
CARRYING AMOUNT
A s at 31 Mar 2021 41,605,961
-----------------
A s at 31 Mar 2020 57,785,038
-----------------
T h e c ost in US dollars and the e xchange rates at acquisition
f or the Aircra ft was as f ollows:
Cost in US dollars 178,549,805
GBP /US dollars e xchange rate 1 .5502
The Company used future soft values excluding inflation which
best approximates residual value as required per IAS 16 Property,
Plant and Equipment (refer to note 3). The combined effect of
translating residual values at the Sterling / US dollar exchange
rate prevailing at 31 March 2021 of 1.3783 (31 March 2020: 1.2420 )
and a 5.4 per cent decrease in average appraised residual values in
US dollar terms, resulted in a GBP 2,008,059 increase in the annual
depreciation charge for the current year as compared to the charge
which would have been made if based on the 31 March 2020 residual
value and foreign exchange rates .
The Company can sell the Asset during the term of the leases
(with the Lease attached and in accordance with the terms of the
transfer provisions contained therein).
Un der IFRS 16 the dir ect costs attrib uted in negotiating and
arranging the Lease ha ve been added to the c arrying amount of the
Asset and are being recognised as an e x pense o v er the lease
term.
Refer to note 3 for details on the impairment review,
sensitivities conducted and residual value assumptions.
11 FINANCE COSTS
Year ended Year ended
31 Mar 2021 31 Mar 2020
GBP GBP
Amortisation of debt arrangement
costs 60,554 60,720
Loan interest 578,184 1,214,263
------------- -------------
638,738 1,274,983
------------- -------------
12 OPERATING LEASES
T h e amounts of minim um f uture le ase receipts at the
reporting date under the non cancellable
operating le ase are detailed belo w:
31 Mar 2021 Next 12 1 to 5 After 5 Total
months years years
GBP GBP GBP GBP
Aircraft - A rental
receipts 3,774,348 1,887,174 - 5,661,522
Aircraft - B rental
receipts 5,460,696 2,730,348 - 8,191,044
----------- ----------- -------- -----------
9,235,044 4,617,522 - 13,852,566
----------- ----------- -------- -----------
31 Mar 2020 1 to 5 After 5
Next 12 years years Total
months
GBP GBP GBP GBP
Aircraft- A rental
receipts 8,240,061 6,282,831 - 14,522,892
Aircraft - B rental
receipts 4,891,164 8,191,044 - 13,082,208
----------- ----------- -------- -----------
13,131,225 14,473,875 - 27,605,100
----------- ----------- -------- -----------
T h e operating le ase is f or an Air bus A 380-861 aircra ft. T
he term of the le ase is f or 12 y ears ending December 2022 with
re duced re ntal pa yments in the last two y ears and no e xtension
option.
13 RECEIV ABLES
31 Mar 2021 31 Mar 2020
GBP GBP
Prepayments 114,351 13,676
Sundry debtors 11 11
------------
114,362 13,687
------------ ------------
T h e abo ve c arrying v alue of receiv ables is equiv ale nt to
its f air v alu e.
14 P A Y A BLES (amounts falling due within one y ear)
31 Mar 2021 31 Mar 2020
GBP GBP
Accrued administration fees 5,805 6,079
Accrued audit fee 24,125 13,085
Other accrued expenses 23,475 15,383
------------
53,405 34,547
------------ ------------
The above carrying value of payables is equivalent to its fair
value.
15 BORRO WINGS
31 Mar 2021 31 Mar 2020
GBP GBP
Bank loan 5,444,248 15,620,114
Transaction costs (103,191) (163,745)
------------ ------------
5,341,057 15,456,369
------------ ------------
Current portion 3,046,374 9,578,401
------------ ------------
Non-current portion 2,294,683 5,877,968
------------ ------------
Notwithstanding the fact that GBP9.1 million (31 March 2020:
GBP11.1 million) of debt was repaid during the year, as per the
Statement of Cash Flows, the v alue of the borrowin gs has
decreased by GBP10.1 million (31 March 2020: GBP9.8 million) due to
the 9.89 per cent movement in the Sterling / US dollar exchange
rate for the Period from 1.242 at 31 March 2020 to 1.3783 at 31
March 2021. See note 19.
T h e amounts below detail the f uture contract ual undiscounted
cash flo ws in respect of the lo an, including both the principal
and interest pa yments, and will not agree dir ectly to the amounts
recognised in the Statement of Fin ancial P osition:
31 Mar 2021 31 Mar 2020
GBP GBP
A mount due f or s ettlement within 12 mo
nths 3,279,704 10,184,006
=========== ============
A mount due f or s ettlement a fter 12 mo
nths 2,459,778 6,369,346
=========== ============
T h e Lo an was arranged with W est pac f or $122,000,000, runs
f or 12 y ears until December 2022 and has an e ff ective interest
rate of 5.4950 per cent., which is the same as the contract ual fix
ed interest rate. T he Lo an is secured on the Asset. No breaches
or de f aults occurred in the year. Transaction costs of arranging
the lo an ha ve been deduct ed from the carrying amount of the Loan
and
are being amortised o v er its lif e.
In the direct ors' opinio n, the abo ve c arrying v alue of the
bank lo an is appro xim ate to its f air v alu e.
16 S HARE CA PITAL
T h e S hare Ca pital of the Company is represented by an
unlimited number of shares of no par v alue being issued or
reclassified by the Company as Share Capital.
Issued Administrative Ordinary
Shares Shares
Issued shares as at 31 March 2021
and as at 31 March 2020 2 42,450,000
------------------------ --------------
Issued Shares GBP
Total Share Capital as at 31 March 2021 and as at 31
March 2020 39,016,728
--------------
Members holding Shares are entitled to receive and participate
in any dividends out of income attributable to the Shares; other
distributions of the Company available for such purposes and
resolved to be distributed in respect of any accounting Period; or
other income or right to participate therein.
Upon winding up, Shareholders are entitled to the surplus assets
remaining after payment of all the creditors of the Company.
Members have the right to receive notice of and to attend, speak
and vote at general meetings of the Company. However the Board has
considered the potential impact of the Pandemic on the arrangements
for the AGM. The Company is required by The Companies (Guernsey)
Law, 2008, as amended, to hold an AGM. Measures taken by the States
of Guernsey in response to the Pandemic mean that attendance at the
AGM by Shareholders who are not residents of Guernsey is not
reasonably practicable.
Due to the Pandemic there will be little opportunity to
physically interact with the directors therefore AGM's are not
performed in person. However, the Board considers it important that
all Shareholders have the opportunity to make their views known and
to exercise their voting rights at the AGM. The Company has
therefore strongly encouraged all Shareholders to exercise their
votes in respect of the meeting in advance and to submit any
questions they may have to either the Secretary or the Corporate
and Shareholder Adviser.
The holders of Administrative Shares are not entitled to
receive, and participate in, any dividends out of income; other
distributions of the Company available for such purposes and
resolved to be distributed in respect of any accounting Period; or
other income or right to participate therein. On a winding up,
holders are entitled to a return of capital paid up on them after
the Shares have received a return of their capital paid up but
ahead of the return of all additional capital to the holders of
Shares.
The holders of Administrative Shares shall not have the right to
receive notice of and shall have no right to attend, speak and vote
at general meetings of the Company, except for the Liquidation
Proposal Meeting (general meeting convened six months before the
end term of the Lease where the Liquidation Resolution will be
proposed) or if there are no Shares in existence
17 CASH AND CASH EQUIVALENTS
31 Mar 2021 31 Mar 2020
GBP GBP
Cash at bank 2,092,159 3,770,813
---- ------------ --------------
Cash and cash equivalents are highly liquid, readily convertible
and are subject to insignificant risk of changes in value.
18 FINANCIAL INSTRUMENTS
T h e Compan y's main fin ancial instruments c omprise:
(a) Cash and c ash equiv ale nts that arise dir ectly from the
Compan y 's operations; and
(b) A loan secured on non-current asset.
19 FINANCIAL RISK MANA GEMENT OBJECTIV ES AND P OLICIES
T h e Compan y 's objective is to obtain income returns and a
capital return f or its S harehold ers by acquirin g, le asing and
then s elling a sin gle aircra ft.
T h e f ollowing table details the categories of fin ancial
assets and liabilities held by the Company at the re porting
date:
31 Mar 2021 31 Mar 2020
GBP GBP
Financial assets
Cash and cash equivalents 2,092,159 3,770,813
Receivables (excluding prepayments) 11 11
------------ ------------
Financial assets at amortised cost 2,092,170 3,770,824
------------ ------------
Financial liabilities
Payables 53,405 34,547
Borrowings 5,341,057 15,456,369
------------ ------------
Financial liabilities measured at amortised
cost 5,394,462 15,490,916
------------ ------------
T h e main risks arising from the Compan y's fin ancial
instruments are capital management risk, f oreign currency risk,
credit risk, liquidity risk and interest rate risk. T he B oard
regularly re vie ws and agrees policies f or ma naging each of
these risks and these are s ummarised belo w:
(a) Capital Management
The Company manages its capital to ensure that the Company will
be able to continue as a going concern while maximising the return
to Shareholders through the optimisation of the debt and equity
balance. The Company is not subject to any externally imposed
capital requirements.
The capital structure of the Company consists of debt, which
includes the borrowings disclosed in note 15, cash and cash
equivalents disclosed in note 17 and equity attributable to equity
holders, comprising issued capital and retained earnings.
The Company's Board reviews the capital structure on a bi-annual
basis.
Equity includes all capital and reserves of the Company that are
managed as capital.
No changes were made in the objectives, policies or processes
for managing capital during the years ended 31 March 2021 and
2020.
(b) Foreign Currency Risk
The Company's accounting policy under IFRS requires the use of a
Sterling historic cost of the Asset and the value of the US dollar
Loan as translated at the spot exchange rate on every statement of
financial position date. In addition, US dollar operating lease
receivables are not immediately recognised in the Statement of
Financial Position and are accrued over the period of the Lease.
The directors consider that this introduces artificial variance due
to the movement over time of foreign exchange rates. In actuality,
the US dollar operating lease receivables should offset the US
dollar payables on the amortising loan. The foreign exchange
exposure in relation to the Loan is thus largely naturally
hedged.
Lea se rentals (as detailed in notes 4 and 12) are receiv ed in
US dollars and Sterling. T hose le ase rentals receiv ed in US
dollars are used to pay the lo an repa yments due, also in US
dollars. B oth US dollar le ase rentals and lo an repa yments are
fix ed and are f or similar sums and similar timin gs. T he matc
hing of le ase rentals to s ettle loan re pa yments there f ore
minimises risks caused by f oreign e xchange fluct uations.
T h e carrying amounts of the Compan y 's f oreign currency
denomin ated monetary assets and liabilities at the re porting date
are as f ollows:
31 Mar 2021 31 Mar 2020
GBP GBP
Bank loan (US dollar) - liabilities (5,444,248) (15,620,114)
Cash and cash equivalents (US dollar)
- assets 400,472 2,388,396
------------ -------------
The following table details the Company's sensitivity to a 25
per cent. (31 March 2020: 25 per cent.) appreciation of Sterling
against the US dollar. 25 per cent. (31 March 2020: 25 per cent.)
represents the directors' assessment of the reasonably possible
change in foreign exchange rates. The sensitivity analysis includes
only outstanding foreign currency denominated monetary items and
adjusts their translation at the year end for a 25 per cent. (31
March 2020: 25 per cent.) change in foreign currency rates. A
positive number below indicates an increase in profit and equity
where Sterling strengthens 25 per cent. (31 March 2020: 25 per
cent.) against US dollar. For a 25 per cent. (31 March 2020: 25 per
cent.) weakening of Sterling against the US dollar, there would be
a comparable but opposite impact on the profit and equity.
31 Mar 2021 31 Mar 2020
USD impact USD impact
GBP GBP
Profit or loss 1,008,756 2,646,344
Assets (80,094) (477,679)
Liabilities 1,088,850 3,124,023
------------ -----------------
On the eventual sale of the Asset, the Company will be subject
to foreign currency risk if settled in a currency other than
Sterling. Transactions in similar assets are typically priced in US
dollars.
(c) Credit Risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company.
Refer to the going concern section on pages 63 to 65 where an
assessment of Emirates is made.
T h e credit risk on cash tra nsactio ns is mitigated by tra
nsacting with counterparties that are regulated entities subject to
prudential supervisio n, or with high credit ratings assigned by
international credit rating agencies.
T h e Compan y 's fin ancial assets e x posed to credit risk are
as f ollows:
31 Mar 2021 31 Mar 2020
GBP GBP
Receivables (excluding prepayments) 11 11
Cash and cash equivalents 2,092,159 3,770,813
------------
2,092,170 3,770,824
------------ ------------
Surplus cash is held in accounts with Barclays Bank PLC and
Westpac, which have credit ratings given by Moody's of P-1 and P-1
respectively. Moody's considers the outlook of the banks current
ratings to be stable.
T he re is a contract ual credit risk arising from the
possibility that the Lessee may de f ault on the le ase pa yments.
T his risk is mitigated, as under the terms of the le ase agreement
betw een the Lessee and the Compan y, any non-pa yment of the le
ase rentals constitutes a " S pecial T ermin ation E v ent", under
which the Le ase termin ates and the Company may either choose to
sell the Asset or le ase it to another party.
A t the inception of the Le ase, the Company select ed a Lessee
with a strong bala nce sheet and fin ancial outlook. T he fin
ancial strength of Emir ates is regularly re vie wed by the B oard
and the Asset Manager.
(d) Liquidity Risk
Liquidity risk is the risk that the Company will encounter
difficulty in realizing assets or otherwise raising funds to meet
financial commitments. The Company's main financial commitments are
its ongoing operating expenses and debt service to Westpac.
Ultimate responsibility f or liquidity risk management rests
with the B oard, which est ablished an appropriate liquidity
management framework at the incorporation of the Compan y, through
the timin gs of le ase rentals and lo an repa yments. T he Company
manages liquidity risk by maintaining adequate reserv es, banking f
acilities and borrowing f acilities, by monitoring f orecast and
act ual cash flo ws, and by matc hing pro files of fin ancial
assets and liabilities.
T h e table below details the residual contract ual maturities
of fin ancial liabilities, including estim ated interest pa yments.
T he amounts below are contract ual undiscounted cash flo ws,
including both principal and interest pa yments, and will not agree
dir ectly to the amounts recognised in the st atement of fin ancial
position.
31 Mar 2021 Over 5
1-3 months 3-12 months 1-2 years 2-5 years years
GBP GBP GBP GBP GBP
Financial liabilities
Payables -
due within
one year 53,405 - - - -
Loans payable 819,626 2,459,778 2,459,778 -
----------- ------------ ---------- ---------- -------
873,031 2,459,778 2,459,778 - -
----------- ------------ ---------- ---------- -------
31 Mar 2020 Over 5
1-3 months 3-12 months 1-2 years 2-5 years years
GBP GBP GBP GBP GBP
Financial liabilities
Payables -
due within
one year 34,547 - - - -
Loans payable 3,091,367 7,092,640 3,639,625 2,729,720 -
3,125,914 7,092,640 3,639,625 2,729,720 -
----------- ------------ ---------- ---------- -------
(e) Interest Rate Risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows. It is the risk that
fluctuations in market interest rates will result in a reduction in
deposit interest earned on bank deposits held by the Company.
T h e Company mitigates interest rate risk by fixing the
interest rate on the loan and the lease re ntals.
T h e f ollowing table details the Compan y 's e x posure to
interest rate risks, by interest rate re fin ancing perio d:
31 Mar 2021 V a ri Fixed Non-interest Total
able interest Be aring
interest
G BP G BP G BP G BP
Financial assets
Receiv ables
(excluding
prepayments) - - 11 11
Cash and c ash equiv
ale
nts 2,092,159 - - 2,092,159
----------------------- ----------------------- ----------------------------- ----------
Total financial
assets 2,092,159 - 11 2,092,170
----------------------- ----------------------- ----------------------------- ----------
Financial liabilities
Payab l e s - - 53,405 53,405
Loan s pa y able - 5,444,248 - 5,444,248
----------------------- ----------------------- ----------------------------- ----------
Total financial
liabilities - 5,444,248 53,405 5,497,653
----------------------- ----------------------- ----------------------------- ----------
Tot a l int e r es t
se n s iti v ity g a
p 2,092 159 5,444,248
----------------------- -----------------------
31 Mar 2020 V a ri Fixed Non-interest Total
able interest Be aring
interest
G BP G BP G BP G BP
Financial assets
Receiv ables
(excluding
prepayments - - 11 11
Cash and c ash equiv
ale
nts 3,770,813 - - 3,770,813
----------------------- ----------------------- ----------------------------- ----------
Total financial
assets 3,770,813 - 11 3,770,824
----------------------- ----------------------- ----------------------------- ----------
Financial liabilities
P a y ab les - - 34,547 34,547
Loan s pa y able - 15,620,114 - 15,620,114
----------------------- ----------------------- ----------------------------- ----------
Total financial
liabilities - 15,620,114 34,547 15,654,661
----------------------- ----------------------- ----------------------------- ----------
Tot a l int e r es t
se n s iti v ity g a
p 3,770,813 15,620,114
----------------------- -----------------------
I f interest rates had been 50 basis points hig her throughout
the year and all other v aria bles were held const ant, the Compan
y 's pro fit f or the year and net assets attrib utable to S
harehold ers as at 31 March 2021 would ha ve been GBP10,461 (31
March 2020: GBP18,854 ) greater due to an increase in the amount of
interest receiv able on the bank bala nces.
I f interest rates had been 50 basis points lo wer and all other
v aria bles were held const ant, the Compan y 's pro fit f or the
year and net assets attrib utable to S harehold ers as at 31 March
2021 would ha ve been GBP10,461 (31 March 2020: GBP18,854) lo wer
due to an decrease in the amount of interest receiv able on the
bank bala nces.
20 CHANGES IN LIABILITIES ARISING FROM FINANCING ACTIVITIES
The following table discloses the effects of the amendments to
IAS 7 Statement of Cash Flows which requires additional disclosures
that enable users of financial statements to evaluate changes in
liabilities arising from financing activities, including both
changes arising from cash flows and non-cash flows. The table below
excludes non-cash flows arising from the amortisation of associated
costs (see note 15).
31 Mar 2021 31 Mar 2020
GBP GBP
Opening Balance 15,620,114 25,486,481
Cash flows paid - capital (9,132,742) (11,113,917)
Cash flows paid - interest (577,143) (1,233,659)
Non-cash flows
- Interest accrued 578,184 1,214,263
- Effects of foreign exchange (1,044,165) 1,266,946
Closing Balance 5,444,248 15,620,114
------------ ---------------
21 ULTIMATE CONTROLLING P ARTY
In the opinion of the direct ors, the Company has no ultimate c
ontrolling party.
22 RELATED PARTY TRANSACTIONS AND MATERIAL CONTRACTS
Doric is the Company's Asset Manager.
Under the Asset Management Agreement, the Company pays Doric a
management and advisory fee of GBP250,000 per annum (adjusted
annually for inflation from 2012 onwards, at 2.25 per cent. per
annum), payable quarterly in arrears.
During the year, the Company incurred GBP313,048 (31 March 2020:
GBP307,312) of expenses with Doric of which GBP307,147 (31 March
2020: GBP300,388) related to asset management fees of as shown in
note 5, and GBP5,901 (31 March 2020: GBP6,924) was liaison agent
fees. At 31 March 2021, GBPnil (31 March 2020: GBPnil) was owing to
this related party
Amedeo Services (UK) Limited was the liaison agent.
During the year, the Company incurred GBP6,007 (31 March 2020:
GBP4,809) of expenses with Amedeo Services (UK) Limited which
related to liaison agent fees as shown in note 5. At 31 March 2021,
GBP4,796 (31 March 2020: GBP3,250) was prepaid to this related
party. The Company terminated the agreement with the liasion agent
with immediate effect on 21 April 2021.
Nimrod is the Company's Corporate and Shareholder Advisor.
During the year, the Company incurred GBP124,474 (31 March 2020:
GBP120,156) of expenses with Nimrod. As at 31 March 2021, GBPnil
(31 March 2020: GBPnil) was owing to this related party.
JTC Registrars Limited is the Company's registrar, transfer
agent and paying agent.
During the year, the Company incurred GBP10,187 (31 March 2020:
GBP11,083) of expenses with JTC Registrars as shown in note 5. As
at 31 March 2021, GBP737 (31 March 2020: GBP1,611) was owing to
this related party.
JTC Fund Solutions (Guernsey) Limited is the Company's Company
Secretary and Administrator.
During the year, the Company incurred GBP59,503 (31 March 2020:
GBP61,763) of expenses with JTC Fund Solutions (Guernsey) Limited
as shown in note 5. As at 31 March 2021, GBP5,805 (31 March 2020:
GBP6,079) was owing to this related party.
23 S UBSEQUENT EVENTS
On 15 April 2021, a further dividend of 2.25 pence per Share was
declared and this was paid on 30 April 2020.
On 16 July 2021, a further dividend of 2.25 pence per Share was
declared and this will be paid on 31 July 2021.
The services provided by Amedeo Services (UK) Limited as liaison
agent to the Company was terminated with immediate effect on 21
April 2021.
KEY A DVISERS AND CON T ACT IN FOR M A TION
K E Y I N F O R M A T ION
E x chan ge: Special ist Fund S e gme nt of t he London S t o ck
E xchan g e's M a in M ark et
T i c k e r: DN A1
Li st ing Da te: 13 Decemb er
2010
Fi nancial Year End: 31 M arch
Ba se Curre ncy: Pound Sterling
I S I N: GG 00B4 M F3899
SED O L: B4 M F389
LEI: 2138009FPM7EH4WDS168
Coun t ry of I ncorpora t ion:
G uernsey
Re g i s t ra t ion number: 52484
M A N A G E ME NT A ND A DMI
N I S T R A T ION
Co mpa ny Secretary a nd A dmi
Reg i s tered Off i ce n i s trator
D o ric Nimrod A ir One Limi t JTC Fund Solutions ( G uernse y)
ed Limi t ed
G round Floor G round Floor
Do rey Court Do rey Court
Ad miral Pa rk Ad miral Pa rk
S t Pe t er P ort S t Pe t er P ort
G ue rnsey G Y1 2 HT G ue rnsey G Y1 2 HT
A s se t Manager Leas e and Debt Arran g er
Do ric Asset Finance Gm bH & Co.
D o ric GmbH KG
Be rliner S t r asse 114 Be rliner S t r asse 114
6306 5 O ff enb ach am M a in 6306 5 O ff enb ach am M a in
G e r many G e r many
Co rporate and Shareho l d er A u d i tor
Advisor
Nimrod Capital LLP Deloi tt e LLP
1-3 Norton Folgate Re g en cy Cou rt
London G la t e g n y Esplanade
E1 6DB S t Pe t er P ort
G ue rnsey G Y1 3 HW
So li c i tors to the Comp a A d voca tes to the Co m pa ny
ny (as to Eng l i sh L a w) (as to G u ernsey Law)
He rbert Smi th Freehills LLP Ca rey O lsen
E x chan ge House Ca rey House
P rimrose S treet Le s Ba n q ues
Londo n, England S t Pe t er P ort
EC2 A 2EG G ue rnsey G Y1 4 HP
Reg i s trar
JTC Re g i s trars L imi t ed
G round Floor
Do rey Court
Ad miral Pa rk
S t Pe t er P ort
G ue rnsey G Y1 2 HT
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END
FR FLFFDTRIFIIL
(END) Dow Jones Newswires
August 02, 2021 13:34 ET (17:34 GMT)
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